Building a grant budget

This guide is for the person who has written a strong grant story and now faces the spreadsheet. Many small charities lose grants not because their program is weak, but because the budget doesn't add up or doesn't match the words. After reading, you'll be able to build a simple grant budget, write the budget narrative that explains it, and handle three topics that confuse almost everyone: indirect costs, in-kind gifts and matching.

Start with the real cost of the program

Before you think about the funder, work out what the program truly costs to run for the grant period. Do this even if you only plan to ask for part of it.

List everything the program uses:

• People. Staff time spent on the program, and any contractors. If someone works on the program for 10 hours of a 40-hour week, a quarter of their pay and benefits belongs to the program.
• Supplies and materials. Food, books, art supplies, safety gear.
• Space. A share of rent and utilities, if the program uses your space.
• Travel. Mileage, bus passes, van costs.
• Equipment. Laptops, tables, a freezer.
• Other. Insurance, background checks, printing, software, training.

Use real quotes, past receipts or published prices. A budget built on guesses falls apart when a reviewer asks one question.

A simple grant budget layout

Most funders give you a form. If they don't, a table like this works well. Say a youth reading program costs $40,000 a year and you ask one foundation for $15,000 (a hypothetical example):

Then list the "other sources" by name: other grants applied for or received, donations, events, earned income. Mark which are confirmed and which are pending.

The budget narrative

The budget narrative (sometimes called a budget justification) is a short explanation of each line. It answers "why this amount?"

For each line, give:

• what it is,
• how you worked out the number, and
• how it serves the program.

For example: "Program coordinator, $20,000. Half of a full-time salary of $40,000 including benefits. The coordinator recruits and trains volunteer tutors, schedules sessions and tracks reading scores."

Keep the math visible. Reviewers should be able to check every number with a calculator.

Direct and indirect costs

Direct costs are costs you can tie clearly to one program, like the books for the reading program.

Indirect costs are shared costs that keep the whole charity running, like bookkeeping, insurance, the executive director's time, rent for the office or the audit. They are sometimes called overhead or administrative costs. Every program depends on them, even though no single program "owns" them.

Many small charities leave indirect costs out of their grant budgets because they worry funders will think they're wasteful. That leads to a charity that runs good programs while its basic operations starve.

Here's how to handle them:

• Read the funder's rules. Some foundations allow a set percentage for indirect costs. Some don't allow them at all. Some welcome them. Follow what they say.
• Show them honestly. Either list them as their own line, as in the table above, or include a fair share within each line. Don't count the same cost twice.
• For federal grants, there's a specific rule. Under the federal Uniform Guidance, 2 CFR 200.414, a charity without a federally negotiated indirect cost rate may choose a "de minimis" rate of up to 15 percent of modified total direct costs (a defined subset of direct costs). It needs no documentation to justify, but once chosen it must be used for all federal awards until you get a negotiated rate, and costs must be charged consistently, never as both direct and indirect.

In-kind contributions

An in-kind contribution is a gift of goods, services or space instead of cash. Examples: a church lends its hall for free, a grocery donates food, a printer donates flyers.

Funders often like to see in-kind support because it shows the community backs you. To show it in a budget:

• List it in a separate column or section marked "in-kind."
• Value it fairly, at what you would otherwise pay. Keep a letter or record from the giver.
• Don't count it as cash. You can't pay a bill with a donated hall.

Volunteer time is a special case. It's real and valuable, and many funders like to know about it. But the IRS says donors can't deduct the value of their time or services, and accounting rules on recording donated services in your financial statements are strict. Describe volunteer hours in your narrative, and only put a dollar value in the budget if the funder asks for it and explains how.

Matching and cost sharing

Some funders require a match, also called cost sharing. That means you must raise a certain amount from other sources for every dollar they give. A "one-to-one match" means you raise one dollar for each dollar they give.

Before you accept a grant with a match:

• Check what counts. Some funders accept in-kind gifts as match, others want cash only.
• Check timing. Must the match be raised before you receive the grant, or during it?
• Be sure you can raise it. Missing a match can mean returning grant money.

For federal grants, 2 CFR 200.306 sets the rules. Matching funds must be verifiable in your records, not used as match for another federal award, necessary and reasonable for the project, and included in the approved budget when the agency requires it. Volunteer services from professional and technical people can count if the service is needed for the program, valued at rates consistent with what you'd pay for similar work.

Common budget mistakes

• Numbers in the narrative don't match the budget table.
• The budget doesn't add up. Check every total twice.
• Asking for more than the funder's stated range.
• Leaving out indirect costs that the funder would have allowed.
• Listing other income as "confirmed" when it's only hoped for.
• Forgetting costs that rise during the grant, like a planned pay raise.

Budget checklist

• We built the full program budget first
• Every line has a source for its number
• We followed the funder's rules on indirect costs
• In-kind gifts are shown separately and valued fairly
• Any match is realistic and we know what counts toward it
• Totals are checked and match the narrative
• Our treasurer or bookkeeper has reviewed it

If you want someone with finance experience to check your numbers, ask a member charity for help through the Exchange.