Nonprofit budgeting can feel like an endless project. That’s because nonprofits don’t just create a single annual operating budget.
Instead, we have:
- Annual operating budgets
- Program and project budgets
- Grant budgets
- Overhead rate calculations
- Budget narratives
- Cash flow projections
- And more…
Add in donor expectations, community needs, internal capacity needs, and an evolving funding landscape, and it’s easy to see why nonprofit budgeting can be challenging.
But if planned thoughtfully, each of these budget elements can fit together to support your impact and your fundraising efforts—while also covering your nonprofit’s overhead costs.
3 Budgeting Tips for Funding Nonprofit Overhead
1) Document Your Nonprofit’s True Operating and Overhead Costs
When budgeting for your nonprofit, it’s essential to be honest and realistic about what it takes to run your organization and create impact.
With pressure to have low overhead and show donors that “every dollar goes to programming,” it’s tempting to underestimate the true costs of nonprofit work.
But if you underestimate overhead costs in your annual budget, you will be scrambling to fill funding gaps all year long.
Instead, we encourage nonprofits to adopt the budgeting belief that:
Overhead enables impact.
Administrative and overhead expenses may be less visible, but they are essential.
- Without finance and accounting services, your nonprofit can’t pay staff or vendors, fulfill legal requirements to maintain your 501c3 tax status, or monitor your organization’s cash flow.
- Without HR functions, your nonprofit can’t hire and onboard staff. You’ll also struggle to provide competitive offers to get the right talent for your team.
- Without fundraising staff and consultants, your nonprofit won’t have the resources available to deliver any programming at all.
- Without the necessary equipment, software subscriptions, and office or meeting space, your team can’t collaborate and get work done.
So, when creating your operating budget and annual fundraising plan, be realistic about ALL the costs that go into your work. Unless you know true costs, there’s no way to effectively fundraise to cover them.
2) Be Realistic About Program Costs—Especially with Donors
While many foundations can be strict about “indirect cost rates,” a growing number of donors are recognizing the importance of funding overhead as part of programmatic work.
In the past few years, major foundations like the Ford Foundation, MacArthur Foundation, and the David and Lucile Packard Foundation have all raised their indirect cost rates for project grants.
When you are realistic with your donors about overhead expenses and what they allow you to accomplish, it helps create a virtuous cycle. Donors adopt more realistic expectations about what it takes to deliver effective programs. Your board members—who are volunteers, donors, and part of your fundraising team—also understand and can share with others the importance of funding overhead.
And your fundraising team can make simple language shifts to more realistically talk about what donor dollars support, rather than touting unrealistic expectations and divisions between “program” and “overhead” costs.
3) Count Your In-Kind Costs as Real Costs
One of the most common omissions in operating budgets and grant budgets is not including in-kind costs. Volunteer hours, in-kind services, and goods provided in-kind are ALL essential to your organization’s success. That means your organizational operating budget and grant budgets should reflect that reality.
Nonprofit Budgeting: More Resources that Work in the Real World
Here at Funding for Good, we’ve guided countless organizations through planning, budgeting, and fundraising processes. If you’re interested in more support, we recommend getting started with an on-demand consultation or self-paced webinar series.
If you’re ready to dive into long-term planning and budgeting for your nonprofit, our evidence-based nonprofit strategic planning services are customized to your needs and goals. We offer free consultations to see if our approach is right for you.
