Planning a nonprofit budget: Example and best practices 

Fundraising is already challenging enough, but keeping your organization financially sustainable adds another layer of responsibility.  

In fact, a survey conducted by Sage found that nonprofits rank budgeting and financial planning as one of their top five internal challenges.

Why?

Because nonprofit revenue streams can be unpredictable, and it’s easy to prioritize program funding over internal needs. 

However, a solid budget helps you navigate these challenges, ensuring your nonprofit can operate effectively while making a meaningful impact. 

In this guide, you’ll walk through the essentials of budgeting for nonprofits, covering different budgeting methods, best practices, and key components.

By the end, you’ll have the knowledge and tools to build a reliable financial plan with confidence that balances financial constraints with your nonprofit’s ability to carry out its mission.  

What is a nonprofit budget?

A nonprofit budget is your organization’s financial blueprint.

It outlines your projected income and expenses over a specific period, usually a fiscal year.

Think of it as a roadmap that helps your team manage financial resources effectively, ensuring you have the funds to support your programs and initiatives. 

Your budget brings together income from various sources, including donations, grants and fundraising efforts.

It indicates which items are subject to specific stipulations—otherwise known as restricted funds—which typically make up the bulk of revenue for nonprofit organizations.  

To keep everything organized, your budget categorizes funds into clear nonprofit budget categories, helping you allocate resources efficiently and maintain financial stability. 

The purpose of budgeting for nonprofits

If your organization qualifies for special tax rules, a nonprofit budget serves as a financial model that outlines projected income and expenses.

Unlike standard budgeting, your priority as a nonprofit is to consider project goals from the perspective of donors and stakeholders rather than generating profits.

 This means your budget must detail the use of restricted and unrestricted funds and prioritize mission-driven spending over the financial results.  

A well-structured budget details how restricted and unrestricted funds will be allocated, ensuring transparency and accountability.

By prioritizing mission-driven spending, you can clearly demonstrate to donors how their contributions directly support your organization’s goals and impact.

At the same time, balancing mission-driven initiatives with responsible financial management is key to ensuring your nonprofit’s long-term sustainability. 

Sample nonprofit budget layout and key components

When creating a nonprofit budget, you’ll typically include key financial details in a structured format.

Most nonprofit budgets have columns indicating the period covered, budgeted amounts, actual spending, and the percentage difference from the previous period or year. 

Your budget will also have two main sections. 

• Income sources—including donations, grants, fundraising revenue, and other funding streams. 
• Operating expenses—including program costs, administrative expenses, salaries, and overhead. 

Many nonprofit budget templates include separate sections for restricted and unrestricted funds, helping you track donor-restricted contributions and general operating funds more effectively. 

Below is a basic nonprofit operating budget example to show how these components typically come together. 

	Current year figure so far	Current year projected budget	Previous year budget	% Difference
Revenue Sources
Donations
Restricted
Unrestricted
Grants
Restricted
Unrestricted
Investment returns
Total revenue	$$	$$	$$
Expenses
Salaries
Materials and services
Rent
Total expenses	$$	$$	$$

Methods for building a nonprofit budget

Not only do the key budget components vary depending on your mission and structure, but there may also be differences in the budgeting method used by different nonprofits.

Here are some common methods: 

Zero-based budgeting 

Zero-based budgeting requires your financial planners to evaluate each expense based on current needs, starting from scratch for each new budgeting period. 

This approach ensures that resources are allocated more strategically and efficiently.

It is most useful for nonprofits that want to avoid unnecessary expenditures or when they need to adapt to significant changes in their operating environment.

Such changes could include the addition of new funding sources or new restrictions dictated by existing donors. 

Preparing a real-world budget example for nonprofit organizations can help guide your approach and aid in the decision on whether to use these budgeting methods or another variant. 

Driver-based budgeting 

Rather than starting zero at the beginning of each budgeting period, the driver-based method links budget resources to the key drivers influencing your costs and revenues, such as the number of program participants, fundraising events, or grant cycles.

By focusing on these drivers, you can create more accurate and dynamic budgets that reflect the underlying factors affecting your financial performance. 

Driver-based budgeting helps your nonprofit align its financial planning with operational activities, making adjusting to changes and improving decision-making easier. 

Top-down budgeting 

In this method, your nonprofit senior management first develops a high-level budget for the organization.

Once the top-level numbers are created, amounts are allocated to individual functions, programs, or departments that must create a detailed budget and plan with their allocated expenses or revenue targets. 

With top-down budgeting, you can ensure all departments and programs in your organization are working towards the same goal.

It’s also quicker to implement and help senior leaders stay on top of the organization’s resource allocation. 

Bottom-up budgeting 

Bottom-up budgeting starts with the people who know the details best—your team.

By involving staff from various departments in the budgeting process, you get a more accurate and realistic picture of your financial needs.

This approach establishes trust and openness within the organization, as your employees understand how their input influences the overall financial plan.  

Different nonprofit budget types 

Having a detailed plan, such as a nonprofit budget sample for each program or fundraising activity, helps you maintain transparency and meet donor expectations.

However, the budget type you choose will depend on the size of your nonprofit and where you are in your mission’s journey.  

Here are some common nonprofit budget types and when to use them: 

Operating budget

This is the most common type of budget, typically covering an entire fiscal year (usually 12 months).

It serves as your financial roadmap, guiding day-to-day financial planning, monitoring cash flow, and evaluating your organization’s overall financial health.

In this sense it is the primary source for making informed decisions, assessing funding needs, and communicating financial expectations to your board and stakeholders. 

Capital budgets

A capital budget focuses on long-term investments and major expenses, such as acquiring property and equipment, or technology upgrades.

It is typically used when you embark on projects that require large upfront costs and may span multiple years.

You can use a capital budget to ensure such initiatives have minimal impact on daily operations.

Examples include building a new facility, such as an aid distribution center, purchasing vehicles, or investing in new IT infrastructure. 

Program-specific budgets

Program-specific budgets detail the income and expenses related to a specific initiative, such as a youth mentoring program, a community food bank, or an educational campaign.

This budget model helps you track each program’s financial performance separately, ensuring funds are used effectively and in accordance with donor or grant requirements.

This type of budget is particularly useful for managing restricted funds—allowing you to demonstrate compliance with donor stipulations, report to funders, and evaluate a program’s financial sustainability.  

Following on from program-specific budgets, it’s worth noting that this category includes the subcategories of grant proposal budgets and opportunity budgets: 

Grant proposal budget

If your nonprofit relies heavily on grant funding, this budget outlines program costs to meet grantor specifications, including fund-matching requirements. 

Opportunity budget

This budget allocates funds for unplanned or emerging opportunities, such as piloting a new program, investing in innovative technologies, or responding to unexpected needs.

It reflects your capacity for strategic growth, agility, and flexibility. 

How to write a nonprofit budget

A well-organized nonprofit budget makes all the difference in your effort to align financial resources with your mission.

Here are the basic steps for drafting a nonprofit budget template that will guide your success: 

Define the initial plan and process 

Start with setting clear goals and bringing in key stakeholders—such as program managers and department heads—who can provide detailed estimates of expected costs and revenues. 

At this stage, it’s also important to assign roles to those involved in budget management.

Clarify who will oversee different aspects of the budget as your project takes shape and outline the processes that will guide them. 

Finally, a realistic timeline for budget preparation should be established, ensuring enough time for review and adjustments before final approval. 

Evaluate your organization’s readiness

Your budget is a recipe for financial health over the forthcoming year, but don’t ignore the health status you expect when closing the current year.

Failure to do so could set you up for awkward surprises if the budget is built on shaky ground.  

Another finding from our nonprofit tech trends survey was that global economic uncertainty in 2024 was a significant concern for most nonprofit leaders.

An assessment of your readiness should therefore also consider the external factors and trends shaping the current context, as well as past performance of your programs. 

Align nonprofit budget planning with your goals

A well-structured nonprofit budget aligns expected financial resources with your organization’s mission and goals, ensuring financial sustainability while maximizing project impact.  

For example, your programs may have multiple goals, such as improving the quality of aid while also reaching more beneficiaries.

Since different funding sources often come with specific restrictions, your budget should carefully allocate resources to cover each need effectively. 

A popular methodology for this kind of planning is the S.M.A.R.T model, originally formulated for determining management goals.

The acronym stands for Specific, Measurable, Attainable, Realistic, and Time-related criteria. 

In the case of budget planning, the criteria translate into: 

• Specific: clearly defined the goal 
• Measurable: means of tracking progress and success 
• Attainable: how to achieve the goal, and who will do it 
• Realistic: ensuring there are sufficient resources to achieve the goal 
• Time-related: a workable timeframe for each goal 

Thorough research on revenue and expenses

Creativity is key to keeping your fundraising campaigns fresh and engaging.

But with each campaign being unique, costs can vary significantly.

Plus, funding sources like grants, social campaigns, or corporate donations can be unpredictable, changing from year to year. So, how do you plan for these variables? 

In both cases, the standard advice is to start by reviewing past performance to isolate patterns, such as cyclical trends.

This will also show you which funding sources are most reliable, especially true of recurring donations and multi-year grants.  

Be sure to analyze external factors, such as economic trends and changing industry conditions, that may affect your sources’ ability to maintain the flow of contributions. 

While variations in funding may be beyond your control, make sure to monitor your expenses.

A popular rule of thumb is to ensure that at least 65% of total resources go to program costs, such as materials, rentals, and operations, while overheads never account for more than 35% of resources.

For nonprofits, overheads include fundraising costs (such as maintaining your website and hiring campaign staff) and administrative costs (such as maintaining your HQ). 

Modern solutions like predictive analytics can help you visualize past and future scenarios and are often built into commercially available nonprofit accounting solutions. 

Nonprofit budget best practices

It’s easy to be overly optimistic when planning a nonprofit budget, especially when launching new programs or initiatives.

A common mistake is prioritizing program spending without setting aside emergency funds for unexpected challenges. 

To help you avoid these pitfalls, here are some essential budgeting best practices to keep your nonprofit financially stable and mission-focused. 

1. Adequate research and realistic cost estimation   

Use detailed historical data and consult with your nonprofit program managers to develop accurate estimates of expenses and stay on top of underestimating costs. 

Be sure to consider inflation, potential cost increases, and one-time expenses.

Regularly update budget estimates based on real-time information and feedback from staff involved in program delivery. 

2. Monitor cash flow regularly   

Budgeting is all about staying on track.

Review your spending regularly to ensure it aligns with your strategic goals and keeps your nonprofit financially healthy.

These check-ins also help your team adapt to unexpected changes, like program roadblocks or additional funding needs, so your budget stays relevant and effective. 

One critical area to watch?

Cash flow. 

Creating a cash flow forecast that tracks expected income and expenses on a monthly or quarterly basis can make a big difference.

It helps prevent your organization from focusing only on total budgeted amounts without considering when the cash will actually be available. 

This is especially important for nonprofits that rely heavily on grants or fundraising events, which often lead to large, irregular payments instead of a steady revenue stream.

By monitoring cash flow closely, your team can anticipate and plan for periods of lower cash availability.

Investing in cash management software is also a great way to gain better visibility and ensure financial stability.  

3. Implement a contingency fund   

Setting aside a portion of the budget (typically 5-10%) as a reserve will help your organization handle unexpected challenges like sudden drops in donations, emergency repairs, or economic downturns.

To prepare for anomalies without disrupting operations, you should regularly review and adjust the contingency fund based on your financial situation and any emerging risks.  

4. Attention to detail 

When creating your nonprofit budget, it’s important to strike a balance—you want it to be clear and easy to follow while still capturing the details that impact your organization’s financial health. 

While big-ticket expenses often take center stage, small costs add up fast.

Things like utility, bills, office supplies, and software subscriptions may seem minor on their own, but when combined they can create significant overhead costs that eat into your budget. 

Make sure your budget clearly outlines the key components needed to sustain operations, so all stakeholders understand how financial resources are being managed.  

5. The right tool for the job 

You may see many nonprofits start as grassroots organizations, and at that stage it’s reasonable to use spreadsheets to plan budgets.

But sooner or later you need to take a more formal approach, to meet compliancy rules, impress potential donors with clearly displayed information, or simply to avoid errors.  

More and more nonprofits are finding that cloud-based tools solve these issues, often incorporating templates and automated pathways that take a lot of the stress out of budgeting.

Such tools centralize data storage and manipulation, eliminating the need to copy or download documents, and adding a layer of security. 

Nonprofit budgeting made easy

Making a real impact starts with financial stability.

A well-planned budget ensures that your nonprofit can continue serving its mission while maintaining its financial health. 

You can simplify the process—incorporating best practices, adapting to your organization’s needs, and making budgeting easier to manage—with Sage cloud-based financial planning and budgeting software.  

Choosing the right nonprofit accounting software will streamline how your organization understands itself. 

Getting the right tools to help with research, reporting, and financial tracking will give your mission programs the support they need to grow healthily and stay resilient.