How to create your new nonprofit’s first budget (2024)

Creating your nonprofit’s first budget

2. Decide on program activities for this year. It’s time to ask yourself some questions about the programs and services your new nonprofit will provide this year. What program(s) will you run this year? What supplies, equipment, facilities, and staff will you need to operate the program(s)? When your nonprofit is new, it’s easy to bite off more than you can chew initially. Be realistic about what you can successfully operate the first year, especially if you will need to raise the money for the program(s) (fundraising can be a bit slow at first).

3. Estimate expenses for all program activities. Once you have your program activities defined and a list of needs for the program, it’s time to get quotes and estimates for each line item you plan to include in your nonprofit’s first budget. As much as you can, contact vendors and potential providers to get real estimates for costs. For example, if your nonprofit is a food pantry and you want to add shelving, don’t guess how much those shelves will cost. Do some research to find out first what kind of shelves you need for commercial use (there’s a difference between the quality of shelving you can buy at local retailers for your home and shelves that are durable enough to handle daily use). Then get estimates from at least 3 vendors so you can see what the going price is. Put that number in your budget. Repeat this exercise for every line item in your nonprofit’s first budget. Again, don’t try to shorten this process by guessing.

4. Estimate revenue. Every budget has two parts: expenses and revenue. We’ve covered expenses, so it’s time to estimate revenue for your nonprofit’s first budget. Start by projecting any fee for service or program revenue, then get out your fundraising plan. You need to have a well-thought-out plan for generating the revenue you need to support your programs, not “we hope to raise the money.” Lay out each fundraising activity you plan for the year along with a conservative estimate of how much you think you can raise from each one. If you are too optimistic in estimating revenue and you don’t reach your goals, you’ll find yourself struggling to pay the bills later in the year.

5. Adjust until you get a $0 balance. Once you have your total revenue estimated, compare that amount to your total expenses. If revenue doesn’t cover expenses, you’ll need to adjust either revenue, expenses, or both until totals are equal. Again, be careful not to overestimate your revenue just to get a zero bottom line. Be sure you can actually raise the number you put in for fundraising.

Line items to include in your first budget

Here’s a sample startup budget for a new nonprofit:

Tips

As you put your budget together, here are some tips that can help you.

• Document your assumptions and calculations about where the numbers come from. For example, if you assume $10 per person per month for office supplies, write it down. Otherwise, the time will come later when you’re trying to figure out where a number in your budget came from and you won’t be able to remember.

• Use real numbers. This is worth repeating. Don’t pull numbers out of the air. Take the time to get real estimates. Next year, when you have a year’s experience and historical numbers to pull from, you can use your actual numbers as estimates.

• Double-check your math. Whether you’re creating your budget with pen and paper or using an Excel document, double-check the math. Seriously, Excel formulas can get messed up and leave out cells, so manually check the math with your calculator to make sure everything adds up.

• Separate operations from capital, equipment, and special projects. Create a separate budget for capital needs, equipment, and any special projects. Your operating budget should only include revenue and expenses related to operations. If you include a one-time equipment purchase, it’ll give you a false sense of what it really costs to run your programs.

• Include in-kind donations. Include donated items and services (also known as in-kind donations) in your budget so you can get an accurate picture of what it really costs to operate your nonprofit. Get the amount of the donation or estimate it and include it in both the revenue side and the expense side. That way, it cancels out, but still shows the impact those donated goods or services have on your financial picture.

Get smart about budgeting

2. Carefully track your numbers this year, and next year’s budget will be easier to create. That means diligently tracking and recording expenses and revenue, plus program numbers (like number of people helped, number of dogs adopted, etc.). Those details will come in super handy when you start projecting expenses for next year.

3. Useaccounting software to help you manage your finances. Even if your nonprofit is just getting started, it’s not too soon to get into Quickbooks or another accounting software that can help you track and analyze all your income and spending. Here’s a list from Forbes to get you started on your research into which tool will work for you.

The Bottom Line