Budgeting for Nonprofit Organizations: A Guide for 501(c)(6) Associations

Budgeting for nonprofit organizations involves unique considerations, especially for trade associations operating under section 501(c)(6) of the Internal Revenue Code. This nonprofit organization typically generates revenue from membership dues, events, sponsorships, subscriptions and program fees. Expenditures may include events, meetings, publications and other programs largely used to benefit members. Let’s identify your starting point for creating a budget and a few tips and tricks along the way.

To get your budget started, you want to collaborate with key staff to align the budget with the organization’s strategic goals. When budgeting for nonprofit organizations, it’s essential to clearly understand any growth objectives, member service goals, advocacy needs, etc. so you know how to build these pieces into the budget.

Membership dues are a huge source for these nonprofits. When building your budget, reviewing membership dues from earlier years gives insight into what to expect in the coming year. To calculate a revenue estimate, you will want to account for expected membership losses and gains, in addition to any rate increases.

Events hosted by nonprofits are another key revenue source. With this line item in the budget, you will want to factor in the average number of attendees multiplied by the rate you will charge for the event. Don’t forget to include sponsorship revenue, as many companies will pay a fee to sponsor the event.

Some organizations don’t like to include miscellaneous income such as interest income in their budget, because it is not a dependable revenue stream. However, if the organization keeps the estimates conservative and doesn’t depend on the income to keep them afloat, there is nothing wrong with including this in your budget.

Next, operating expenses should be budgeted first due to their predictability and necessity in keeping the organization running. When building your budget, be sure to include office expenses, technology subscriptions, general overhead, salaries and fringe benefits. Be sure to include projected increases in your expenses such as rent escalation, technology upgrades, raises and new hires. 

As we budget for event revenue, we can’t forget to include event expenses. These would include costs that it will take to hold the event. Event space, catering, technology fees and speaker fees to include a few examples. Some organizations are moving to virtual events, as it decreases the cost tremendously, and still allows them to make a profit. Don’t forget travel, meals, lodging and general entertainment costs if the organization expects to send their staff!

It’s easy to budget for costs that we foresee in the future, but what about the costs that we don’t plan for? Our advice is to set up a small contingency fund, no more than 10% of the budget, so those costs are accounted for.

Another key factor that organizations often forget to consider is the budget format. Be sure to use the same chart of accounts and programs in your budget as you use in your accounting system. This will make it easier to compare your budget to actuals in the coming year.

Review your actuals against your budget at least every quarter to ensure everything you planned for is still in line and to make any forecasting adjustments.

Creating a budget for a nonprofit organization like a 501(c)(6) involves careful planning and collaboration. By considering and understanding your nonprofit’s key revenue sources, prioritizing predictable expenses, planning for the unexpected and maintaining a flexible yet consistent format, your organization can create a budget that supports growth and sustainability.

Authors: Austin Miller, CPA | [email protected] and Brittany Turpin | [email protected]