IT Budgets for 501c3 Nonprofits: Key Elements to Consider

Budgets in general are an incredibly stressful undertaking. For organizations specifically designed not to make profit, they can be a flat-out nightmare.
After working hand-in-hand with DC, Maryland, and Virginia 501c3 nonprofits for almost 25 years, we know all too well how challenging it can be for organizations like yours to fit even basic operating costs into your annual budget. This is exactly why it is absolutely critical for nonprofits to create a detailed, accurate IT budgets—you simply cannot afford to be hit with surprise charges over the course of the coming year.
So, when all is said and done, what does a successful IT budget actually look like for nonprofits like yours? Below we’ll walk through both the characteristics of a successful IT budget, as well as what technical elements need to be accounted for in your plan.

Characteristics of a Successful IT Budget

These guidelines can apply to all kinds of budgets, but are essential to keep in mind when creating your IT budget nonetheless:

1. It’s realistic. While we’d love to say that your technology can run perfectly without any investment on your part (okay, maybe we wouldn’t love to say that), that’s just not logical at this stage in the IT game. For 501c3 nonprofits, we recommend using 2-3% of your revenue as a yardstick for your annual IT investment. If you are in a growth of heavy change mode, you should spend more towards 4-5%. These, of course, are guidelines only, and are best viewed as suggested minimums.

2. You can use it as a launching point for the next year. When you get to the end of your fiscal year, will you have something to measure against to see where you may have misjudged your investment? Places where you could have reallocated? Your projections should be detailed (we’ll help with that next), and you should track their development over the course of the year.

If you can manage it, include a forecast for the following two years with your annual budget. These projections need not be as granular, but they should account for any of the following large capital expenditures.

Capital Expenses to Consider for your Nonprofit

What one-time capital investments do you need to account for when creating your budget?

1. Software. Do you use a Donor Management System to keep track of contributions? Is this software due for an upgrade? What about your accounting software? Will you need to purchase any Microsoft Office licenses? Anti-virus?

2. Hardware. How old are your servers and workstations? What about ancillary devices like your firewall and copiers? Are there any expiring warranties that you’ll need to extend? Nonprofits will often run hardware until it breaks, but this also means that the cost of replacement is more likely to catch you by surprise.

3. Labor. In most all cases, these upgrades will require a separate labor investment. Whether you have an outside consultant evaluate your software selection or have your existing IT team physically implement your hardware upgrade, be sure you account for their time as well.


Operating Expenses to Consider for your Nonprofit

What are you putting into your technology systems on an ongoing basis?

1. Internal IT Staff. Do you have an IT team in-house? What are their salaries? What sort of training might they need to complete over the next year?

2. Managed Services. Do you pay an outsourced team to take care of hardware monitoring and maintenance? Helpdesk? Off-site backup of your donor database? Will your provider’s current rates stay the same, or will you need to plan for an increase?

3. Hosted Services. Is your website hosted by a third party? Do you use cloud email solutions like Office 365? Or do you have a complete hosted desktop environment where your infrastructure is off-site? Will these investments stay constant?

It’s a lot to consider, and does require a deep understanding of your organizations’s technologies and how they function. This is why it’s important to work with the people who will actually be performing all of this work so that you’re sure all is accounted for, and that your cost projections are as accurate as they can be.
Wherever possible, leave wiggle-room in your budgets to allow for emergencies or unexpected needs; while you may have allotted funds for a few new workstations, where would you be if your database server crashed?
As painful as the process may be, the confidence you gain from a truly well-planned budget is hard to match; persevere, and your nonprofit will be able to focus its attention on your mission, not dollars.

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