Nonprofit Budget Format: How to Build & Maintain Precise Budgets

More than one in three nonprofits ended 2024 with an operating deficit, the highest percentage recorded in a decade. Over half reported having three months or less of cash on hand. These numbers come directly from the Nonprofit Finance Fund’s 2025 State of the Nonprofit Sector Survey, which gathered responses from more than 2,200 organizations across the country. As we move into 2026, the message is clear: how you structure and maintain your budget can determine whether your organization thrives or struggles to keep its doors open.

Why Budget Format Matters More Than Ever

The financial pressures facing nonprofits remain significant heading into 2026. According to the Nonprofit Finance Fund’s survey, 85% of respondents expected service demand to increase in 2025, while 86% said high costs due to inflation had impacted their organizations and the people they serve. This creates a challenging dynamic where nonprofits must accomplish more with less.

What makes this particularly concerning is that only 41% of survey respondents reported being able to pay all full-time staff a living wage. When resources are tight and demand is growing, every dollar must be accounted for and allocated with intention. A well-structured budget format provides the foundation for making sound financial decisions throughout the year.

Essential Components of Your Budget Structure

A well-designed nonprofit budget format includes several key components that work together to give you a complete picture of your financial situation. The revenue side should clearly separate your income sources into categories such as grants, individual donations, corporate sponsorships and program service fees. This breakdown allows you to see where your money comes from and identify which revenue streams are most reliable.

One of the most important distinctions in nonprofit budgeting is between restricted and unrestricted funds. Restricted funds are earmarked for specific purposes by donors or grantors, while unrestricted funds can be used to support your general operations and overhead. A healthy nonprofit maintains a diverse portfolio of revenue sources with a solid base of unrestricted contributions. When you understand the composition of your net assets, you can make better decisions about what resources are actually available for different purposes.

On the expense side, your budget should organize costs functionally into program expenses, administrative expenses and fundraising expenses. This functional presentation aligns with how you will report expenses on your IRS Form 990 and allows grantors to see what percentage of your budget goes directly toward programs.

Build Your Budget Step by Step

Creating a nonprofit budget takes time, typically one to two months depending on your organization’s size. We recommend working backward from your board meeting date to determine when budget development needs to begin. Rushing the process leads to inaccurate projections and missed opportunities for input from key stakeholders.

One pitfall we see frequently is when the accounting department and CFO take on the budgeting process without involving others. If you want program directors and department heads to be accountable for their spending, they need a seat at the table during budget discussions. Their on-the-ground perspective helps forecast realistic program costs and identify potential cost-saving opportunities.

When building your expense projections, start with your fixed costs like salaries, rent and insurance. These are relatively predictable and form the foundation of your budget. Next, incorporate your grant-related expenses because your grant agreements often dictate specific spending requirements. Finally, budget your remaining expenses using historical data and projected usage rates.

For revenue, grant-funded organizations should start with their grant agreements, while donation-funded organizations need to carefully evaluate their recurring donors and current economic conditions. We advise against cutting expenses simply to match historical revenues. Instead, start with your expenses and determine how much revenue you need to support them, then strategize with your development team about how to meet those goals.

Budget to Actual Analysis and Variance Monitoring

Your board has a fiduciary responsibility to monitor spending, and a budget to actuals analysis should be presented at each board meeting. This report compares your planned budget to your actual results and provides explanations for any variances. Understanding the difference between what you budgeted and what actually happened is essential for maintaining financial health and making mid-year adjustments when necessary.

Variance analysis distinguishes between favorable variances, where you spent less than budgeted or earned more than expected, and unfavorable variances, where spending exceeded your plan or revenue fell short. Not every variance indicates a problem. Some differences result from timing issues that will self-correct, while others represent genuine operational concerns requiring intervention. The key is understanding why variances occurred and what actions, if any, you need to take.

Integrate Your Budget With Accounting Software

Many nonprofits overlook a crucial step in the budgeting process: making sure the budget is loaded into their accounting software. Including your budget in your software allows you to generate reports for your board, grant agencies and program managers so they can quickly access up-to-date numbers. This integration also helps prevent the errors that often occur when you pull numbers into spreadsheets and manually add budget figures.

Some grant agreements come with specific budgetary stipulations that require board approval of your budget, regular revisions or even publishing your budget on your website. Having your budget integrated with your accounting system makes it easier to meet these requirements and maintain compliance with grantor expectations.

Revise Your Budget Throughout the Year

Your nonprofit’s needs and circumstances will likely change as the year progresses, and your budget should change with them. When spending exceeds authorized amounts, budget amendments may be necessary. The number of amendments you make can reflect the effectiveness of your original budgeting process. Frequent amendments might indicate that initial projections were too optimistic or that significant changes in your operating environment were not anticipated.

We recommend evaluating whether you are on track to meet your financial goals each month. If you are running a deficit, examine your expenses first. If there is no remaining flexibility to trim, be prepared to have discussions with your board about how to secure additional funding streams or adjust program delivery. Going to your board with clear answers about whether a shortfall is a one-time problem or a systemic issue will help everyone make better decisions.

Partner With Experts Who Understand Nonprofit Finances

Building and maintaining a precise budget requires both time and expertise. If your team is stretched thin or lacks the specialized knowledge needed for nonprofit financial management, partnering with experienced professionals can make all the difference. Contact a James Moore professional to learn how our accounting and controllership services can help your organization build a budget that supports your mission for years to come.

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a James Moore professional. James Moore will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.