Be Realistic
Creating a budget for any type of project will determine what your organization can and cannot do. So much will ultimately come down to money, and the numbers represented in the budget will give you a lot of information. It is therefore a responsibility that requires great care. The trick in developing a budget is to merge the desires and dreams of the organization with the reality of securing the funds necessary to pay for them.
Under no circumstances should an organization — especially a new nonprofit — try to live beyond its means. Everyone must understand that the group can only do what it can pay for, so the budget must reflect realistic income projections as well as proposed expenses.
Initial budgets start out with estimates of what items will cost, especially if you don't know precise numbers. Likewise, until you truly know how your actual income will line up, you are in a fragile zone of uncertainty.
Do Your Research
Unless you are trying to reinvent the wheel, people within your community will be able to share with you the numbers you need to get your budget into a usable form. The real dollar amounts that relate to the basic expenses associated with internal operations (office supplies, rent, and even miscellaneous permits) are straightforward and should be simple to collect.
It will be far more difficult to establish concrete income streams. For the purpose of developing your initial budget, you may have no choice but to enter speculative numbers and then be prepared to adjust them as your preliminary research bears results. Once you have identified your income streams, put them into your budget.
The main task at this stage is to create budget lines as placeholders. As hard numbers become apparent and the placeholders are filled in, you will be able to plan your programming and other operations while minimizing the risk of overextending yourself.
Always remember that grant-makers and others involved in philanthropy live in the same world you do. They are just as aware of the regional and global financial picture as everyone else. They also understand the value and role of the nonprofit sector to the broader community.
Think Conservatively
Even with all the planning you are doing, it is still going to be difficult to get through the first few years of your organization's existence. Taking an overreaching budget to potential financial supporters will leave them scratching their heads.
Until you are firmly established, you will face stiff competition for operational funding, so showing inflated numbers in your proposed income lines will not be beneficial. Show honest expectations of revenue — such as conservative estimates of memberships, ticket sales, or projected revenue from fees for service — with the caveat that you are presenting preliminary plans, not hard numbers.
