The Three Nonprofit Budgets You Need

Three Nonprofit Budgets? Really?

Preparing nonprofit budgets is a ton of work. Why on earth would a nonprofit want to prepare three budgets? It sounds crazy, but this is a great exercise for preparing your organization for the future. You won’t use all three, of course. Each version of your budget serves a different purpose and provides a base for discussion for your board.

nonprofit budgets for every organization to consider

The Bare Bones Budget

This is the “no frills” budget that tells the board what expenses are essential and what the organization must have in terms of revenue to support those expenses. To make it through the year in the black these are the must-haves. It gives the board a clear picture of what it takes for the nonprofit to break even.

It’s a dose of reality for the board to understand the most basic expenses and what it takes to keep the doors open. As board members review financial reports each month, they can easily understand when a red flag begins to wave by returning to this budget draft. This is the rainy-day budget that board and staff will go back to if there is a crisis.

The bare bones budget is also a great fundraising incentive for the board. When they see in black and white how much money is needed to keep things running, it motivates them to be more engaged in development.

RELATED: Nonprofit Board Self-Assessments Don’t Have to Be Scary!

The Good Faith Estimate Budget

Think of this as the “middle of the road budget” that is an estimate of what the staff and board think is realistic in terms of revenue from fundraising, grants, events, sponsorships and individual donor giving. It includes the necessities and the reasonable expenses that will help the nonprofit to operate effectively and accomplish its core mission.

A good faith estimate is the nonprofit budget that board members will approve and support in their own fundraising efforts for the year. They can begin to work on board goals for getting there, and staff members can set their own goals for development and programs.

The Stretch Budget

This is the “what if” budget. What if the major donor you have been courting for two years makes the large gift? Suppose the endowment campaign succeeds beyond your modest goals? Imagine if the local foundation makes an unrestricted gift for operations? You must anticipate what you would do if some dreams come true. Nonprofit budgets should account for some windfalls, too!

Planning for the “what ifs” can help you to be prepared when you receive funds that you hope you might receive. Having a policy for what to do with a windfall gift and having a budget that will guide you if it happens is not just wishful thinking. What if the major donor asks you what you would do with a large gift? Do you have a plan of what to tell prospective donors about how you would manage an endowment? Furthermore, what amount you would draw from the endowment each year? What if a local foundation asks how you would allocate an unrestricted gift?

Spend some time with budgets and be prepared for whatever kind of year you will have. With a little preparation, your nonprofit budget will be able to accommodate any outcome.

RELATED: Role of the Board in Nonprofit Budget Preparation

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