Whether you are just starting a nonprofit or have been in existence for years, your organization will need a budget. The larger your organization, the more complex the process may be, including creating multiple project or department budgets with the help of several staff. Even a one-person shop needs a budget which details the basic income and expenses of the organization. A common best practice is to ensure your organization has an operating budget approved by the organization’s board of directors prior to the beginning of the fiscal year to which that budget applies.
In order for the board to adequately manage your nonprofit's financial health, it needs a budget to serve as a benchmark against which to measure current income and expense. A budget can also help predict tough financial times, and thus gives the board plenty of time for contingency planning if grants or other income sources fall through. Lastly, funders will require a budget when applying for grants.
New organizations may start the budgeting process by looking at potential income -- figuring out how much money they have to spend. Existing organizations will have an easier time developing a budget as they will be able to review its history of contributed income and stability of earned income revenue streams, such as fees for service or organizational dues.