- Maintain your tax-exempt status.
- Keep accurate records.
- Use effective budgeting templates.
- Determine overlapping timelines.
- Prioritize your goals.
- Ask for help.
1. Maintain Your Tax-Exempt StatusConsider your personal budget. You likely factor in some extra funds around April and May to help you pay any taxes you owe. However, your nonprofit doesn’t need to worry about these taxes. As a 501(c)(3), your nonprofit qualifies as a tax-exempt organization. Instead of paying taxes, each year your nonprofit must file a Form 990 to maintain this exempt status. If you fail to file your nonprofit’s 990, the repercussions could have a drastic impact on your budget! Depending on your nonprofit and varying circumstances, these repercussions could look slightly different:
- If your nonprofit’s gross receipts are less than $100,000 and you’re late filing your 990, you’ll see a $20 penalty each day the 990 is late. If you continue to not file, this penalty will continue to grow until you’ve reached $10,000 or 5% of your income.
- If your nonprofit’s gross receipts equal more than $100,000 and you’re late to file your 990, the daily penalty jumps to $100 per day with a maximum charge of $50,000.
- If your nonprofit, no matter its size, fails to file your Form 990 three years in a row, your organization will lose its tax-exempt status. This means you’ll need to reapply for tax exemption and pay filing fees again.
2. Keep Accurate RecordsAccurate budgets are built from data-informed estimates, generally built from records from previous years’ budgets and expenses. Accurate records from previous years can help your nonprofit formulate a budget based on real numbers that are applicable to your specific goals. Basic records of the income from your nonprofit’s previous year can be found on your Form 990, which is public record. If you used tax filing software, like File 990, you can also find records about “taxable” income from your account in the software. While this is a great resource, your Form 990 can only provide so much information about your nonprofit’s financial standing. Be sure to also maintain more accurate records year after year for more extensive budgeting purposes. The other information that you should be sure to include in these reports are:
- Fundraising campaign expenses and ROI
- Operational expenses
- Project expenses
- Individual contribution income
- Sponsorship income
3. Use Effective Budgeting TemplatesIf your nonprofit is on the newer side, you’re probably working from a set template within your fund accounting solution. These templates are effective in that they are used to help nonprofits create a preliminary budget. Be sure you can track the elements of budgeting that are specifically required for nonprofit organizations. For instance:
- Grant allocations
- Unrestricted funds
- Restricted funds
4. Determine Overlapping TimelinesYour annual budget spans over the entire year. However, not every aspect of your budget will fit perfectly into a single year. Some of the projects and campaigns will be much longer or much shorter than a year. For instance, a capital campaign often lasts for multiple years from start to finish. Meanwhile, #GivingTuesday only lasts for a day. Identify the places within your budget that won’t fit perfectly into your annual calendar, then plan according to their overlapping deadlines.
When elements of your budget last less than a year…When you have short-term fundraising campaigns, such as a peer-to-peer fundraising campaign, event, or auction, it’s generally a good idea to spread them out throughout the year. Consider the times of the year when the majority of people will be driven to participate for the best return on investment. An auction for your local school, for instance, will likely be most successful after school hours, but you may have difficulty getting people involved over the summer because the need is not perceived as immediate. You may also plan payments for your nonprofit to take place over time rather than all at once. Let’s just say you have a conference coming up, but you also want to buy a new computer for your office. It may be worth waiting to purchase the computer until after the conference travel expenses are paid for in order to better spread out your expense budget.
When elements of your budget last longer than a year…The classic example of a budgetary element that will last longer than a year is a capital campaign. Capital campaigns span over multiple years and are designed to fund major projects. Be sure you take into consideration the full length of time that these campaigns will take and factor benchmarks into annual budgets. Benchmarks throughout the campaign will help you plan your fundraising strategy each year and ensure you keep your allocated funds straight.
5. Prioritize Your GoalsIt’s important to prioritize your goals in the process of creating your budget. Setting goals for yourself ensures that your nonprofit is constantly moving forward towards your mission. There are a couple of steps you can take if you’re having some difficulty getting organized: First: Make a list of all of the goals you’d like your nonprofit to accomplish in the next year. Next: Estimate the expenses necessary to meet each of these goals. For instance, it may cost $500 to replace an office computer, but $20,000 to renovate the headquarters. Third: Consider at what times during the year you’ll be most likely to have the most fundraising success and what those numbers will look like. Lastly: Set deadlines for meeting each of your goals. Be sure you have goals paired on your calendar with fundraising campaigns that will help you reach them. By including your goals both in your budget as well as on a calendar, your nonprofit will find it easier to meet them and move onto more in the years to come.
6. Ask for HelpThere’s nothing wrong with asking for help if your nonprofit needs it. There are a lot of resources out there that can help your organization better organize a budget and improve your fundraising efforts. After all, better fundraising results in the potential for a more extensive budget and more goals to reach. A fundraising consultant can help your organization get an objective outside perspective on the various aspects of your fundraising strategy. You can hire one to help formulate your strategy as a whole, launch a major campaign, or rework various aspects of your organization for more effective processes. If a fundraising consultant sounds like a good idea for your organization, you’ll need to conduct a few different steps to get the most out of it:
- Determine what services you need and how improving elements of your organization will impact your overall budget.
- Think about what type of consultant will make the most impact on your organization: remote or in-person.
- Factor in the cost of the consultant themselves. Make sure you have a clear idea of the consultant fees and how those will impact your budget.
A lot of factors go into your nonprofit’s budget. Make sure you stay on top of your nonprofit’s taxes, goals, fundraising, and more to factor all of these important elements into your annual financial plan.
This post was contributed by David Ebner at File990. David is a marketing executive, public speaker, and author who specializes in the effectiveness of storytelling in marketing. When he’s not writing about nonprofit software, he enjoys volunteering at educational programs around his home.