Securing funding through grants requires high-quality budgets for applications. The process can be intimidating due to the extensive work involved, but the potential rewards for an organization make it worthwhile. Grant applications often request various types of budgets, which resemble a funnel, starting broad and narrowing down. Applicants need to provide budgets ranging from the entire organization’s budget to more focused budgets like program and project budgets. For nonprofits, this means identifying specific costs associated with each category and explaining the budget through a budget narrative.
Understanding Grant Budgets
For those who find the word “budget” to be daunting, this guide aims to demystify grant budgets. Understanding what grantors are looking for is part of learning how to write successful grants. Grantors examine budgets to determine if they genuinely support the organization’s mission, including overhead costs. Some grantors specifically ask how much of the budget is allocated to fundraising, administration, and program costs, which can be found under functional expenses in an audit. When applications ask for a budget, they are not just asking for numbers. Applicants usually need to submit the actual budget in a specific format. While formats differ, all budgets show annual (calendar year or fiscal year) revenues and expenses. The exact breakdown of line items varies from organization to organization. It is recommended to read Dan Pallotta’s Uncharitable, which provides an insightful look at the long-time argument about overhead expenses.
Grant Budget Breakdown
This section explores the breakdown of grant budgets, providing insight into various types of budgets required for successful grant applications.
Types of Grant Budgets:
1. Organizational Budget
This is at the top of the funnel and represents the budget for the entire organization. If an organization operates under one 501(c)(3), it’s straightforward with just one overall budget. However, if a nonprofit is organized into multiple 501(c)(3)s, it gets more complex. In that case, the applicant should choose the 501(c)(3) budget that covers the programs or services relevant to the grant request. Typically, the budget is displayed in columns with revenue and expense descriptions and amounts. Since many grants are now submitted online, it is important to ensure budgets are in PDF or Excel formats. Applicants should submit Board-approved budgets. If the next year’s budget is not yet approved, they should submit the current budget with a note stating it is not yet Board-approved. This helps if there are changes later, allowing applicants to explain them. This is particularly useful when submitting a budget with a Letter of Intent (LOI) and later an application with a different approved budget.
2. Program Budget
A program budget is a subset of the organizational budget, focusing only on the costs of the specific program. Since most nonprofits offer numerous programs, a separate budget for each is required. This budget is usually necessary even if applicants only seek funding for specific areas such as supplies or personnel. It is important not to guess—approved budgets from the finance department or the executive director should be obtained.
3. Project Budget
As the budget narrows down the funnel, a project budget becomes more specific. For instance, within an education program, there might be several types of educational initiatives. Budgets for each subset will be needed based on the funding request. For example, if requesting funds for a technology upgrade, the project budget will reflect the total technology needs.
4. Specific Grant Funding Budget
Some grantors want to see exactly what their funding will cover. For instance, the overall technology budget might include software, hardware, individual computers, and subscriptions. If requesting the funder to cover the cost of a server and three laptops, a budget showing only those items may need to be submitted. This can also be detailed in the project budget by including a total column, a column for the grant request, and a column for other funding sources.
5. Special Grant Budget Forms
Sometimes, grantors provide a specific form for budget information. Rarely does an organization’s budget align line-by-line with these forms. For example, some grantors want personnel costs separated from employee benefits and taxes, while others lump them together. It is important to seek help from the finance department to ensure accuracy. For very small organizations, the executive director should be consulted. Federal grants often require special budget forms, sometimes several, especially for multi-year grants. Few organizations prepare budgets years in advance, so it is best to work with the finance department. For those who received Cares Act monies, next year’s budget may look significantly different from this year’s.
Crafting Budget Narratives
Often, a budget narrative must be completed, explaining the line-item budget for program, project, and specific grant funds. The budget narrative is an opportunity to clarify what line items mean. For example, instead of just listing “technology,” the narrative would explain what’s included in this category and why it is essential for the organization’s mission. For instance, three new laptops might be needed to replace three that can no longer be repaired and are crucial for staff work in the field.
Creating detailed and accurate budgets for grant applications can be a daunting task, but it is essential for securing funding. By understanding the different types of budgets required and how to present them effectively, organizations can significantly enhance their chances of success. It is important to ensure budgets are clear, concise, and approved by the relevant authorities. Budget narratives should provide context and justification for expenses, making it easier for grantors to understand and support funding needs. With careful planning and attention to detail, organizations can create compelling budgets that demonstrate financial responsibility and commitment to their mission, ultimately increasing the chances of receiving the necessary grants.
