Nonprofit Budgeting: How to Plan Your Next Fiscal Year Like a Pro

Roberto Striedinger
7 days ago
6 min read

Every fall, countless nonprofits find themselves scrambling to pull together a budget the week before the board meeting. Program managers send last minute numbers, fundraising projections feel uncertain, and the final document ends up reflecting what happened last year rather than what the organization wants to accomplish next year.

It does not have to be that way. A strong nonprofit budget is not just a spreadsheet. It is a planning tool, a communication tool, and a decision-making tool. Done correctly, your budget gives clarity, reduces stress, strengthens your board relationship, and helps your team plan for growth with confidence.

In this guide, you will learn how to build a strategic and realistic budget for your next fiscal year, using nonprofit budgeting best practices and practical steps that work for organizations of every size.

Why Budgeting Is More Than a Spreadsheet Exercise

Budgeting is not a finance department task. It is a strategic planning process expressed in numbers.

A thoughtful budgeting process helps you:

Align money with mission
Understand staffing needs
Set program goals realistically
Anticipate risks and revenue shifts
Give the board clear decisions to make
Increase fiscal awareness across the organization

Without this process, budgets are often built on guesswork or habit. Many nonprofits simply take last year’s numbers, increase everything by 3 percent, and call it done. This approach ignores upcoming opportunities, upcoming risks, and funding realities.

A strong budget tells a story. It explains what you want to accomplish, how much it will cost, and how you will pay for it.

The Core Components of a Strong Nonprofit Budget

A nonprofit budget has three main components: your revenue forecast, your expense plan, and your restricted versus unrestricted fund structure.

Let’s break these down.

1. Revenue Forecasting

Revenue forecasting is the heart of nonprofit budgeting. You cannot create a meaningful expense plan until you know how much money is likely to come in, or how confident you are in each revenue source.

A strong revenue forecast includes:

a. Donations

Use three-year averages and consider retention rates. For example, if you kept 55 percent of last year’s donors, build that into your estimate.

b. Grants

Categorize grants by probability:

Confirmed
High likelihood
Medium likelihood
Low likelihood

You can assign percentages. For example:

Confirmed 100 percent
High likelihood 75 percent
Medium 50 percent
Low 25 percent

This helps you avoid overestimating.

c. Government Funding

Government grants often come with reimbursement timing that affects cash flow. Include realistic payment timelines in your forecast.

d. Earned Revenue

Workshops, program fees, rentals, or product sales. These are often more stable than donations but must be tracked separately.

e. Corporate Sponsorships

Look at historical patterns and renewal likelihood.

2. Expense Planning

Most nonprofits underestimate expenses. To avoid this, plan your expense budget in layers.

a. Personnel

This is usually 60 to 80 percent of a nonprofit budget. Include:

Salaries
Benefits
Payroll taxes
Professional development
New staff positions

Do not forget cost-of-living adjustments and inflation.

b. Program Costs

Break down each program separately. Include:

Materials
Travel
Contractors
Event costs
Technology

c. Fundraising and Development

This includes donor communications, events, CRMs, consultants, and stewardship.

d. Administrative and Overhead Costs

Admin is not a bad thing. It includes:

Rent and utilities
Insurance
Software
Accounting
Office supplies
Board expenses

e. Inflation and Vendor Increases

Most organizations fail to include these. Vendors increase pricing every year. Add a buffer.

3. Restricted vs Unrestricted Funds

Every nonprofit budgeting plan must consider restrictions. Restricted funds limit how the money can be spent, which means they cannot be used for payroll, rent, or general operating needs unless specified.

Your budget must show:

Restricted revenue
Restricted program expenses
Unrestricted revenue
Unrestricted support costs

This prevents board members from mistaking restricted cash for usable funds.

Step-by-Step: How to Build Your Nonprofit Budget for the Next Fiscal Year

Here is the full workflow used by professional nonprofit CFOs and financial managers.

Step 1: Gather Historical Data

Pull:

Three years of revenue
Three years of expenses
Cash flow history
Donor retention
Grant renewals

Patterns will appear quickly.

Step 2: Align Budget With Your Strategic Plan

Your budget should match your organizational goals. If your plan includes launching a new program or hiring new staff, it must be reflected in the numbers.

Step 3: Draft Your Revenue Forecast

Use probability-weighted revenue forecasting and your grant pipeline to build a realistic forecast, not an optimistic one.

Step 4: Draft Your Expense Model

Start with personnel. Then layer in program costs and overhead. Add inflation and any increases in software, insurance, or rent.

Step 5: Build Multiple Scenarios

Create three versions:

Base case
Conservative case
Stretch case

This helps you visualize risk.

Step 6: Incorporate Cash Flow Into the Budget

A budget shows totals, but cash flow shows timing. For example, a 100,000 dollar grant may not arrive until May. Your cash flow needs to reflect that.

Step 7: Review With Leadership

Meet with each program manager to confirm their needs. Then meet with the Executive Director to refine priorities.

Step 8: Present a Board-Ready Summary

Boards do not need a 20-page spreadsheet. They need:

A one-page summary
Revenue vs expense totals
Key assumptions
Risks and contingencies

This helps them make decisions quickly.

Step 9: Approve and Adopt

The board approves the budget. Make sure they understand how restricted and unrestricted funds differ and what risks they should monitor.

Step 10: Implement a Budget vs Actual Process

A budget is not a static document. Update it monthly and report on variances.

Key questions to answer monthly:

Where did we deviate from plan
Why did it happen
Does the forecast need updating

This practice keeps leadership aligned and avoids surprises.

Budgeting Frameworks Every Nonprofit Should Know

These frameworks help you move beyond simple incremental budgeting.

Program Based Budgeting

Organizes expenses and revenue by program to show true program cost and ROI.

Zero-Based Budgeting

Builds the budget from scratch rather than starting with last year’s numbers.

Incremental Budgeting

Adds or subtracts from last year’s numbers. Easy, but often misleading.

Activity-Based Budgeting

Breaks programs into activities to calculate true costs.

Each has strengths depending on your organization’s size and maturity.

The Role of Cash Flow in Budgeting

Many nonprofits only budget revenue and expenses, not cash flow. This leads to panic in February when a delayed grant causes a cash crunch.

You must plan:

Seasonal revenue dips
Grant reimbursement delays
Payroll timing
Large annual bills

Cash flow is the difference between feeling stable and feeling constantly stressed.

Start with Operating Reserves

The first question you should ask before you start budgeting is, “What are our reserves?”. This will dictate whether or not you should be aiming for a surplus budget, or a break event budget, or even a deficit budget.

You may have a plan in place to build reserves that dictates you build a 10% surplus. If so, that is the goal.
If you have strong reserves, then a break even budget is okay.
If you’ve built extra reserves and there is a strategic opportunity, then a deficit budget can be okay.

The bottom line is that the bottom line can vary!

Common Budgeting Mistakes Nonprofits Should Avoid

Avoid these pitfalls:

Not starting with your operating reserves in mind
Basing everything on last year’s numbers
Overestimating revenue
Forgetting restricted fund limitations
Ignoring inflation
Leaving program managers out of the process
Not linking the budget to strategic priorities

These mistakes lead to unrealistic budgets and frustrated boards.

Real Example: A Nonprofit That Built a Strong Budget and Finally Grew

A youth leadership nonprofit with 750,000 dollars in revenue updated its budgeting process last year. They moved from a one-week rush job to a three-month planning cycle. They created a revenue probability forecast, added cash flow modeling, and involved each program manager early.

The result:

They identified a future cash dip four months in advance
They reduced reliance on one funder from 48 percent to 33 percent
They created their first operating reserve
They presented their clearest board summary ever

Their next fiscal year was the most stable year in the organization’s history.

Plan Ahead, Budget Smarter, Strengthen Your Mission

A strong budget is not about spreadsheets. It is about clarity, confidence, and alignment. When your organization plans its fiscal year with intention, you reduce stress and gain the capacity to grow your mission.

If you want help creating a board-ready budget, building a forecasting model, or designing a year-round financial workflow, we can help.