The second part of an effective nonprofit budget is your expense budget. This is the tool that you use to determine and predict the costs endured by your nonprofit to fund your various projects.
This can be broken down into your fundraising, administrative, and program expenses. The combination of your fundraising and administrative expenses are what make up your nonprofit’s overhead. While every nonprofit’s expense budget will look slightly different, the Better Business Bureau recommends that organizations don’t spend over 35% of your funding on their overhead expenses and spend at least 65% on their programs.
However, as we mentioned, this will look different for each nonprofit. That’s why it’s important to discuss your own expenses with an accountant who has experience working with nonprofits. They can help make sure your expenses are in check.
On a more granular level, your nonprofit should keep in mind the specific expenses you’ll encounter, such as:
Fundraising expenses can be broken down into your campaign marketing, fundraising event venue or virtual software investment, and fundraising technology tools.
Administrative expenses can be broken down into things like the salary that you pay your employees, the investments you make to organize data, the rent for your office space, and the bills you pay for your organization.
Program expenses are those that are necessary to conduct your work in the community. For instance, an organization that encourages music education for underprivileged kids might invest in classroom space, instruments, and music books for their program.
The best way to estimate what your nonprofit’s expenses will be is by examining what you’ve spent in the past. Be sure to separate your organization’s fixed and variable expenses, then estimate what various budget items will cost.
Fixed expenses are those that are constant from year to year like your organization’s office rent. You can count on this to be the same price from year to year due to the contract you have with your management company. Meanwhile, variable expenses are those that may change from year to year and cannot be counted on to remain constant. For example, your fundraising expenses might change from year to year depending on the campaigns you’re running.
There are many misconceptions about nonprofit expenses. People tend to think that nonprofit employees shouldn’t make great salaries and that overhead is an inherently bad thing. This just isn’t true. The expense portion of your budget should ensure a healthy financial balance for your organization.