Insider Tips for Creating an Organization Operating Budget

An operating budget is a financial plan that outlines an organization’s projected income and expenses for a specific period of time (typically a year). Budgeting helps organizations to allocate resources effectively, measure performance, and make informed decisions. This resource guide provides essential tips for creating an operating budget.

Budgeting 101

Define Your Budgeting Period

The budgeting period is the time frame that you intend to offer a service or programming. Common periods include a fiscal year (12-month period used for accounting purposes) or a calendar year. When defining your budgeting period, consider the timing of grant cycles, fundraising events, and major expenses.

Understand Your Revenue Streams

To create an accurate budget, you need to understand your revenue streams and how they fluctuate throughout the year. This can include fee for service, donations, grants, fundraising events, and program fees.

Create Expense Categories

Create expense categories that align with your organization’s programs and activities. Common expense categories include staff salaries and benefits, rent, utilities, office supplies, travel, marketing, and program expenses. Ensure that you have a detailed understanding of the costs associated with each category.

Estimate Income and Expenses

Using your revenue and expense categories, estimate your income and expenses for the budgeting period. Use historical data, program budgets, and anticipated changes to create a realistic projection.

Track Your Actual Income and Expenses

As you move through the budgeting period, track your actual income and expenses against your budget. This process will help you identify areas where you need to adjust your spending and income projections.

Essential Tips for Creating a Budget

Involve Key Stakeholders

Involve key stakeholders, including board members, staff, and volunteers, in the budgeting process. This collaboration creates buy-in and helps ensure that everyone understands the organization’s financial situation.

Keep It Simple

Create a budget that is easy to understand and follow. Avoid using complicated accounting terms and instead use plain language that everyone can understand.

Use Historical Data

Use historical financial data to create your budget. Historical data provides a baseline for revenue and expense projections and helps you identify trends.

Be Realistic

Create a budget that is realistic and achievable. Overestimating revenue or underestimating expenses does more harm than good.

Plan for Contingencies

Include a contingency plan in your budget for unexpected expenses or revenue shortfalls. Having a contingency plan helps you stay financially stable during challenging times.

Review and Adjust Regularly

Regularly review your budget and make adjustments as necessary. Your budget is a working document, and unexpected events may require changes to your revenue and expense projections.