Creating Your New Nonprofit’s First Budget

February 25, 2016
5 minutes

Your budget for your new nonprofit is one of the most important tools your organization will need to manage finances. 

As a part of your fundraising plan, your budget will ensure there’s always money on hand to pay for those items needed to operate your programs.

Hope is a great thing when starting out, and it is very much needed to keep the motivation going. But you will need to make practicality and planning part of your thinking.

Aside from making sure the bills get paid, your budget will also get you more funding as it will be presented to donors that you know exactly what to do to ensure each dollar spent or allocated was justified and that you know exactly what it costs to deliver services.

Creating Your Budget

For most of you, start with a blank sheet of paper (or a blank screen). Let’s look at five steps to get there.

Step 1 – Make the Time

Do not rush this part. Commit to devoting the time necessary to get it done and done correctly. Since your nonprofit is new, you will not have the luxury of historical numbers to review. 

You will have quite a bit of estimating to do for this process. Set aside a couple of blocks of time to research things like materials, supplies, and equipment online. You can also visit local vendors to see the cost of the items you are looking for. Always try to get three estimates for each line item to give you a good perspective on whether pricing is too high or too low. 

It is important to leave yourself enough time to do this properly, or your budget will not be accurate or realistic and will cause problems later when you will need to depend on this tool to be your financial guide.

Step 2 – Define What Program Activities You Want to Complete for This Year

This is where you need to ask yourself a few questions regarding the programs and services your new nonprofit will provide the year ahead. What program(s) will you run? What will you need with respect to staff, supplies, facilities, and equipment in order to operate the program?

It is surprisingly easy to bite off more than you can chew when it’s your first year. Take a hard look and be realistic in what you can actually deliver over the year. This is especially true if you need to raise money for the program first, as fundraising can be slow at the beginning. 

Step 3 – Mark down your all program activities estimated expenses

Once your program activities have been defined and you’ve created the list of needs for each, the time is right to get actual quotes and estimates for each line item. For example, let’s say you are running a food pantry as your nonprofit, and you will need shelving. Don’t guess at the cost of shelving or even quickly grab a price off the internet. 

Do a bit of research to see what kind of commercial shelving is available and if there are discounts for bulk purchases or sales to nonprofits. Get your three estimates to ensure the pricing is on point. Do not take any shortcuts by making ‘guesstimations’ and proceed to do this for each line item.

Step 4 – Estimate Your Revenue

All Budgets consist of two basic parts: revenue and expenses. Expenses were covered above, so now we can turn our attention toward revenue. 

Begin by identifying all fees for program or service revenue. Now get your fundraising plan out. You will need a thoroughly thought out plan in order to generate the revenue needed to support your programs. Don’t rely on “we hope to raise the money.” Plan out each fundraising activity over the course of the year and along with an estimate of the dollar amount to be raised for each one. 

Be as accurate as you can. If you are too optimistic and discover you haven’t been meeting the goals, you will struggle to pay the bills for the remainder of the year.

Step 5 – Adjust and Adjust Some More Until You Achieve a $0 Balance

Compare your new total revenue estimate with your new total expense estimate. If your revenues do not cover the expenses, you will need to adjust either the revenue or expense lines until they are equal. Be cautious here not to change the numbers just to get a zero balance.

Be Smart with Your Budgeting

Be prepared for next year on time. The process can be much simpler if you do two things in advance.

  1. Start Early. The more time you take, the better the outcome. You will avoid feeling rushed and maybe slotting in numbers without giving serious thought.
  2. Track your numbers carefully this year. If you can do this now, your budget for next year will be much easier to build. You must be diligent with your tracking and recording of expenses and revenue (also good to know your program numbers: numbers of people helped, or dogs adopted, etc.). These details are priceless when the time comes to project your expenses for the following year.

Final Thoughts

The first budget is easily one of the most important planning tools you will need. This will guide the growth of your organization. Spend the time needed to see this through to completion to help your nonprofit reach each of its goals. This will define your organization as one that is keenly aware of what it takes to be successful as a positive contributor to the community.

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