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Guide to Building a Startup Budget

Last modified: September 1, 2021
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Estimated reading time: 2 min

Benefit of the Exercise

Budgets can be intimidating, especially if you have never done one or don’t know how much money you will have available to meet expenses. No worries. The unknown can be used to your benefit. Think of this as creating your elevator speech. If you have someone in the elevator asking how much you need to operate your organization, or what will you spend your money on – this is how you find the answer to respond to them.

Estimate your income and expenses

In general, the Form 1023 or 1024 IRS application(s) lay out the intended plans and goals of the organization and, being the IRS, they are interested in the financials. These should reflect both the estimated revenue streams and the costs you anticipate you will need to operate the organization. We have created a spreadsheet to help you project your financial needs for the organization for its first three years of operations. The spreadsheet is a great template for setting up your chart of accounts, to then think about if any of these line items as may be applicable to your organization.

When you are unsure of where your funding will come from or how much, we recommend starting with expenses so you can get a sense of how much revenue you will need to generate. Any of the line items in the sample might be an expense that the organization will incur each year and, if so, how much would you need to spend in those line items. Think administrative costs, fundraising costs (if any), and program direct costs. Once you have that estimated, you know how much income your organization will need to meet its budgeted expenses.

So, now you can focus on what type of income will you have or need to generate. Think about donations from individuals or corporations, or grants, or program revenue generated by charging people to attend your programs.  If program revenue, how much will each person pay and how many might attend (this becomes your program revenue math)?

Also consider any fundraising gross income if you will do fundraising. Remember, if you project fundraising income, you should be sure to enter possible fundraising expenses to conduct the fundraising activities.

Staff or volunteers:

Don’t overlook the staffing. If you project hiring staff, you should use the second tab of the spreadsheet to enter the job titles and proposed salaries for each position you will hire.  Be sure to then define job descriptions for each position to include in the application and assist with substantiating compensation you propose to pay. This is a detail that the IRS reviewers (and funders) will pay close attention to, so we attempt to overcome any questions during their review process by including sufficient details in the financials and in attached materials.

Balance it out

You should show at least a balanced budget. While you may be operating a nonprofit entity, it is expected that in order to meet your expenses you will likely have to generate sufficient income through public support or program revenue or fundraising income. Give it a go and see that you can do this.

PLEASE SEE OUR BUDGET TUTORIAL VIDEO LINK BELOW.

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