How to Calculate a Nonprofit Operating Budget

It is also noteworthy that 6% of executive directors receive no salary at all—they’re volunteers. With these features in mind, let’s dive deeper into the two sides of your nonprofit’s operating budget. To clear up any confusion surrounding these resources, we’ll begin by answering some common questions about nonprofit budgets. A 2008 study by the American Marketing Association and Lipman Hearne found that the average non-profit marketing budget was between 2% and 3% of the total operating budget. Inflation accounts for slight increases in cost over time, and fringe benefits are the non-salary costs for employees if you offer (or plan to offer) benefits to your staff as you grow as an organization. Creating a budget, planning finances for the future, and analyzing financial data will set you apart early on as an organization to funders and partners, and make daily and strategic planning easier.

Spending Rules

Non Profit Pay Scale and Other Recommendations The Better Business Bureau’s standards recommend that at least 65 percent of the nonprofit’s total expenses should be for program expenses, including salaries. A capital budget focuses on long-term investments rather than day-to-day operations. It includes major purchases like buildings, vehicles, technology systems, or equipment that will serve your organization for several years.

What are the types of budget for business?

It is important for nonprofits to keep numbers in context, by referring back to goals endorsed by their boards. A nonprofit budget should be revisited and adjusted monthly to match actual performance. Changes to the budget should be made in order to stay on track with strategic goals. Use a budget when creating a nonprofit organization because it will help you plan for the future.

(Honorable Mention) Programmatic Display Advertising

This alignment helps create more accurate forecasts and smoother cash flow management. Limelight’s pricing includes unrestricted functionality and data usage, ensuring scalability and cost-efficiency for organizations of all sizes. By comparing budgets against actual monthly financial statements, you can identify variances and prepare analysis reports on time. For instance, a food bank might establish a reserve fund specifically for sudden increases in community needs during economic downturns. The goal isn’t just to survive emergencies—it’s to remain mission-focused through tough times.

Figure out your expenses

In some cases, boards did succeed in hiring at a new level of competence and the model was proven correct. But in other cases, boards still were unable to attract talent with which they were satisfied. The executive director’s salary should make the organization competitive in the market for talent. If the answer is a similar nonprofit, look at the salaries of comparable nonprofits in the area. Develop, analyze and apply your organization’s budgets with expert help from the nonprofit financial professionals at Jitasa.

• By dedicating resources to these efforts, charities ensure that they gain access to shared expertise and community-level insights, which can reduce long-term operational costs by as much as 15%.
• List expenses in the high-level categories of staff, contractors, occupancy, and support expenses (which include all other program and operating expenses).
• Each audience may have different motivations, interests, and communication preferences.
• You need to know how your nonprofit’s cash flows and what to do if the cash doesn’t flow.
• For instance, if your marketing budget is shrinking this year due to a lack of returns, shrinking the communications budget would be counterproductive.

Note that some revenue sources bridge multiple categories and can be organized in different ways. For example, some nonprofits list corporate grants with their other grant funding, while others consider them a type of corporate philanthropy. Just because you are “nonprofit” doesn’t mean you can’t, or shouldn’t, make a profit. Your profit is the total revenue–donations and other sources–minus the total costs to run the organization. Nonprofits, just like any other business, should aim to make a profit to maintain a healthy organization, allow for scaling, and https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ have emergency funds as needed.

Role of Budgeting Software in Nonprofit Accounting

The difference between total income and total expenses results in either a surplus (if income exceeds expenses) or a deficit (if expenses The Key Benefits of Accounting Services for Nonprofit Organizations exceed income). Ideally, a nonprofit aims for a balanced budget with a slight surplus, providing some financial cushion for unexpected costs or changes in revenue. According to the Stanford Social Innovation Review, this cycle starts when a nonprofit reports artificially low overhead costs to major donors and funders. Consequently, funders don’t know the exact amount needed and end up donating underestimated amounts.

Fixed operating costs are the backbone of any charity nonprofit, ensuring that essential activities continue seamlessly. For Harmony Hearts Initiative, a successful charity nonprofit, managing these costs is crucial to achieving its mission and maintaining nonprofit financial transparency. Understanding the true, full cost of delivering various programs and services in the community is a critical piece of the management puzzle. Budgeting in any industry can be overwhelming, let alone if you’re putting together a nonprofit marketing budget.

• Monitoring the budget is important in order to keep track of their strategic plan and how they are performing.
• For practical tips on budgeting and financial organization, check out How Can You Write a Business Plan for a Charity Nonprofit in 9 Steps?.
• More disturbing than generally low salaries are the gender differences in salary.
• However, the budget should be high-level enough so as to not be cluttered and overwhelming.
• A well-formulated nonprofit operating budget allows for the best use of limited nonprofit resources and focuses on the primary goals and objectives of the organization.
• Use last year’s numbers as a starting place and include any quotes from vendors or partners.
• A good budget for non-profit organizations balances program delivery with operational sustainability.

However, this is not strictly recommended, since a percentage increase to the ranges of a compensation structure does not necessarily reflect the shift in the cost of labor within the market. That figure may be used as a quick way to estimate what the overall cost of labor might be. However, overall market value is more complex, and the reality is that some jobs may decrease in market value while others increase at rates that far surpass an initial budget planning figure.