Think of a funnel, going from broad to narrow. The types of budgets that grant applications request are like that. You will be asked to go from the very broad—your entire organization’s budget—to the more focused budgets, such as a program budget and a project budget within a program. For nonprofits, this means that you need to identify the specific costs associated with each of these categories and explain what the budget means via a budget narrative.
If the word budget makes you cringe, read on as I demystify grant budgets. Understanding what grantors are looking for is part of the process of learning how to write successful grants. Grantors look at your budget to see if it genuinely supports your mission. This is where we get into overhead costs. Some grantors specifically ask how much of the budget is allocated to fundraising, administration, and program costs. (These can be found under functional expenses in your audit.)
Before I go any further, if you have not read Dan Pallotta’s Uncharitable, that should be on your to-do list. He provides an insightful look at the long-time argument about overhead expenses.
When applications ask for a budget, they are not just asking for numbers. You usually need to submit your actual budget in a budget format. While formats differ, all budgets show annual (calendar year or fiscal year) revenues and expenses. Exactly how each budget is broken into line items varies a bit from organization to organization. Read on.
This is at the top of the funnel. It is the budget for your whole organization. If your organization is under one 501 (c) (3), it’s simple—there is just one overall budget. But if your nonprofit is organized into multiple 501 (c) (3)’s, it gets a bit more complicated. In that case, pick the 501 (c) (3) budget that covers the programs or services of your grant request. Typically, the budget is displayed in columns with revenue and expense descriptions and amounts. Since many grants are now submitted online, budgets need to be in either PDF or Excel file formats. While being easy to read is important, save your graphics! Many grant portals limit the size of documents you can upload, and heavy graphics might make them too large to upload.
Please be sure to submit Board-approved budgets. If you are at a time when you do not yet have next year’s budget completed, you may submit your budget and put a notation at the top that states this budget is not yet Board-approved. That way, if there are changes later, you can explain them. This helps when you submit a budget with an LOI (letter of intent/inquiry), and then a few months later, you submit an application with a different approved budget.
A program budget is a subset of the organizational budget. It focuses only on the costs of the program. Since most nonprofits offer numerous programs, you will need a separate budget for each one. This budget is usually required, even if you only ask for funding in one or two areas such as supplies or personnel. Don’t guess here—be sure to get approved budgets from the finance department or the executive director.
As we near the bottom of the funnel, a project budget gets more specific. Perhaps you have an education program, but within that program, you have several types of educational programs. Again, budgets for each subset will be needed based on your funding request. For example, if you are asking for a technology upgrade, your project budget will reflect the total technology needs.
What the Grant will Fund Budget
Some grantors want to see specifically what their grant funding will cover. For example, your whole technology budget might include software, hardware, individual computers, and subscriptions. You are asking the funder to grant money to cover the cost of a server and three laptops. You may be asked to submit a budget that only shows those two-line items. However, that may also be designated on the project budget, breaking it down into a total column, a column for the grant request, and a column for what will be funded through other sources.
Special Grant Budget Forms
Sometimes the grantor wishes to receive budget information in a certain way—and they will provide you with a budget form to complete. Rarely is an organization’s budget a line-item per line-item match. For example, some grantors want personnel costs separate from employee benefits and taxes. Others will lump all three together. That’s why you definitely need to seek help from your finance department. Depending on the size of your organization, the finance department may require all financial forms and budget requests are completed by them to ensure accuracy. If your organization is very small, please check with the executive director.
Federal grants always require special budget forms to be completed—sometimes several, especially for multi-year grants. Few organizations prepare budgets years in advance. When completing these forms, it is best to work with the finance department. For those that have received Cares Act monies, next year’s budget may look quite different from this year’s.
If all the numbers weren’t complicated enough, you will often have to complete a budget narrative. This involves explaining your line-item budget—most commonly for program, project, and specific grant funds. The budget narrative is really your friend and allows you to explain what line items really mean. Going back to our technology example, instead of just technology, the narrative would explain what was included in this category, and given space, why it is important to accomplish your mission. An example of this would be explaining that three new laptops are needed to replace three that can no longer be repaired and are important to the work of staff in the field.
Budgets can be intimidating, but don’t let them be. Understand what’s behind the numbers. And remember, a budget is your organization’s mission in numbers.
By Teresa Stohs, Director of Grant Services at Soukup Strategic Solutions
Teresa Stohs is also an Impact Coach. Learn how Teresa can work with you one-on-one as a nonprofit coach to advance your nonprofit career, skills, or impact.