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Why the Budget Matters

One word: budget. Usually, people hear this word and ignore it or run screaming in the opposite direction, but it’s a necessity and part of our reality. It drives everything we do from our personal to our professional lives. In the land of grantmaking, it’s essential to have a budget in place because grantmakers want to know that your financial situation is reasonable and how you plan on spending the money if awarded. 

What is a Budget

A budget is considered to be an estimate of income and expenses for a set amount of time, i.e., one year, multi-year, etc. Because it is deemed a plan, you can use it to effectively map out goals for tracking purposes. A well-thought-out budget will set you up to launch your project with an anchoring financial plan, making project management so much easier. And, when it comes time to report on your grant activities, you will have already established funding categories and expenses (Instrumentl, 2023). The budget should show potential funders EXACTLY where their funds will be directed. Here are six key components that a budget should include:

    1. The numbers are projected. Don’t make stuff up. Make reasonable estimates. These are usually based on last year’s actual expenses.
    2. Include all income and expenses. Sometimes people only provide expenses. It does not give a full financial picture.  
    3. Make sure the dates correspond with actual programming AND the grantmaker fiscal cycle.
    4. Ensure the grant budget is aligned with the orgs strategic objectives.
    5. Make sure that the line items in the budget are aligned with the funder’s focus area (s). (The portion being requested from the grantmaker) 
    6. Some Federal reviewers or foundation board members will look at the budget first and then the narrative. They need to be aligned. 

Budget narrative

Driving the explanation behind the budget is the budget narrative. This narrative will further explain how you arrived at the proposed budget and expenses while expanding on line item details and additional funding sources. In order for potential grantmakers to determine if your grant aligns with their mission, the proposed project/plan must accurately describe how the funds are going to impact the community. Here’s where the budget narrative comes in to provide potential grantmakers with that information. It further justifies more detailed line items while providing context and meaning for the items included. It’s another step in the grant writing process that allows you to “make your case”.

Budget Types

The grant development process provides more than one way to present necessary information. There are several types of budgets. With a traditional project-based budget, it’s more specific to a program or project. For example, an environmental organization wants funding for its environmental stewardship program. The budget will include all the necessary line items required to complete this project. 

Another type of budgeting is outcome-based. Outcome-based budgeting aligns resources with the results. The focus is on the mission and its impact instead of percentage increases for programs that may not be meeting their goals. Four principles of outcome-based budgeting include:

1-Establish outcomes

2-Develop approaches to achieve outcomes

3-Develop a budget with approaches to achieve outcomes

4-Evaluate performance and make adjustments

Grant funding is a revenue source for many nonprofits. Grants can be critical to helping an organization provide for the community they are working for. Budgets are a critical component of the grant development process that will help answer some of the questions potential grantmakers have. Knowing which type of budget to use will help paint a clearer picture. The budget helps drive the narrative so funders can determine if an organization is worth investing their money in. Just as importantly, your budget helps build the case that your organization and programs are sustainable and that the impact of the foundation’s investment will live on well beyond the grant period.


Instrumentl (2023). The Ultimate Guide to Grant Proposal Budgets. Retrieved from

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