Nonprofit Budgeting and Finance

The Basics

  • Your organization needs to increase net assets in order to grow programs and stay ahead of inflation.
  • You need to align your Chart of Accounts with the IRS 990 (
  • You should use accrual accounting.
  • You need to know the fixed and variable costs of your organization.
  • You should indicate salaries, supplies, and space (rent/mortgage) in grant applications.
  • You must track how much it costs to serve a constituent.
  • Executive directors need to be able to answer the question, “How much cash on hand do we have?”
  • Nonprofits should not write a 1-year budget.
  • Trustees and board members need to assess the organizations financial position through automated assessments and dashboards
  • Nonprofits must write a three- or five- year projection of income and expenses.


  • Net Assets: Cash, invested income, and property minus debt (credit cards, loans, and bonds)
  • Fixed costs: Constant expenses that do not fluctuate (salaries, utilities, rent/mortgage)
  • Variable costs: Expenses that fluctuate in relation to the amount of services that you deliver (salaries, utilities, rent/mortgage)
  • Liquid Assets: Money that you can access immediately (cash and bank and money market accounts
  • Cash on hand: Reported in days, liquid assets divided by your budget. For example, if you have a budget of $1M and $500k, you have 182 days of cash on hand.
  • Budget: an estimate of income and expenditure for a set period of time.
  • Dashboard: An assessment of information that a business tracks visually 
  • Proforma: a three- or five- year projection of income and expenses


  • Calculate your expenses first. This is different than budgeting in profit-making industries.
  • Use the count of the number or people you served last year in relation to your variable expenses.
  • Calculate your income second.
  • Include in-kind donations.
  • When applying for grants, include (1) the appropriate percentage of fixed costs to your list of expenses and (2) in-kind donations.

Pro Forma

  • The simplest way to create this is by using a moving average for subsequent years.
  • For example, you want to create a proforma for the next three years. Look at the last three years of expenses. Use the variable costs of the last 3 years. Sum, and divide it by 3. Transfer the fixed costs. Calculate income and adjust to accommodate for anticipated increases/decreases in income. The calculated numbers represent the fourth year’s budget. Repeat for years 5 and 6.
  • If you want to grow the organization, use the cost to serve a person as your basis for variable costs