In many nonprofit businesses, the annual budget is made by looking at what happened in the preceding year and adjusting numbers up or down based on the work that lies ahead. When you’re starting something new, however, you have no preceding year’s results to consider. In that case, you start with zero and carefully consider each number you use to build your plan.
A budget has two key sections — income and expenses. Because dreaming up expenses that exceed your organization’s means is easy, begin with income, making conservative estimates for what you may earn and what you may attract in contributions.
Income
It’s common to separate your income statement into two general categories, “earned” and “contributed,” also called “revenue” (contract or fee income) and “support” (grants and contributions), respectively.
Ask yourself these common questions as you begin developing the income section of your budget:
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Will you offer services or products for which you’ll charge money? How many services and how often? How many people are likely to use them? What can you reasonably charge? How soon will you be ready to offer them?
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Can you sell memberships to people and give them premiums or discounts in exchange for paying those fees?
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Are the founders and board of your organization able to contribute some start-up funds? Are they willing to ask their friends and associates to contribute?
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Is your organization well positioned to receive a grant or grants?
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Are you capable of sponsoring a fundraising event?
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Can you provide visibility to a business sponsor in exchange for a contribution?
Expenses
In anticipating expenses, start with anything concerning the payment of people. That list may include the following:
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Salaries for employees, both full time and part time: On your budget, list each position by title and identify the full-time salary and the percent of full time that person is working for you.
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Benefits for salaried employees: At a minimum, you need to pay approximately 12.5 percent of salaries to cover federally required benefits, such as Social Security, workers’ compensation, and unemployment tax contributions. Some states also require disability insurance, and local jurisdictions may require paid sick leave. Many organizations provide paid leave to employees for vacations, illnesses, and jury duty.
Your organization also may provide health insurance or a retirement plan to its employees. If so, you want to compute those costs as percentages of your total salaries and include them in your budget as benefits. Benefits come immediately after your salary expenses.
When setting up your employee benefits, check on both federal and state requirements. The U.S. Department of Labor website is a good guide to federally required employee benefits.
Employee benefits may cost more than you think. According to the Bureau of Labor Statistics in March 2013, benefits — across all employment sectors — represented 30.9 percent of total compensation to employees. This figure was computed prior to full implementation of the Affordable Care Act, which primarily affects businesses with more than 50 employees.
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Fees for services to consultants or service agencies: You may hire a publicist, grant writer, evaluator, or other consultant to handle important tasks. Such consultants are responsible for paying their own tax and insurance costs. Show fees paid to consultants after salaries and benefits in your budget.
At this point, compute a subtotal for all your personnel costs.
Next, identify all non-personnel expenses, beginning with ongoing operating costs that allow your organization to offer programs. These expenses may include the following:
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Rent
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Utilities
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Telephone and Internet expenses
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Office supplies
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Printing
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Insurance
New organizations often have special start-up costs for the first year, including nonprofit registration and filing fees. For example, you may need to purchase desks and chairs, computers, signs, shelving, office cubicles, and even playground equipment, and you may need to pay for training for new staff members, first and last months’ rent, the telephone and Internet hookup costs, and a photocopier or postage machine lease.
Finally, you may have costs associated with the specific nature of the work of your organization. These expenses range widely but can include diagnostic tests, carpentry tools, classroom supplies, and printed materials.
As much as possible, keep notes in your budget files about the estimates you made while drafting your budget. Keeping a worksheet helps you remember your assumptions and follow your budget.