Ask a grant maker which part of a proposal is most important and you’ll often hear, “The budget.”
It’s the tell-all section of a grant proposal, providing transparency and clarity, revealing an organization’s priorities and financial health. To assess risk, grant makers look closely at every number, from how much employees are paid to the salary/benefit ratio to the fund balance.
As a program officer, I recently reviewed two proposals in which the budget significantly shaped my perspective on the applicant. In the first instance, the proposal was nicely worded and well-designed. It was very informative and pleasant to read. But as I dug into the budget and the group’s Internal Revenue Service Form 990, I discovered financial gaps. Much of the large budget consisted of pass-through grants, money that came in and went right back out to other nonprofits doing different work.
In the second example, a less-fancy proposal from a small organization indicated a relatively strong financial footing and adequate compensation of employees. What was their trick? Even though the second proposal had a smaller budget, the organization presented as a better investment opportunity.
Here are a few tips to ensure your next grant-proposal budget is clear, compelling, and instills confidence in the reviewer.
Provide clarity and transparency.
Include enough line items to detail different expenditures and revenues, but not so many as to be confusing. I recommend using industry-standard categories for expenditures, such as salary, benefits, travel, consulting, etc.
When reporting revenue from other foundations (both prospective and confirmed), list the respective amount for each source. After seeing this information, a grant maker is likely to reach out to these foundations to learn about their experience supporting your group, which can turn your current donors into informal advocates. That’s a good thing!
Be ready for questions regarding line items and the potential of prospective revenue to be confirmed. Questions are a good sign. It shows the funder is interested.
Show your strength.
Budgets are a powerful tool to showcase your priorities. Big investments in certain line items, and brief notes explaining what goes into each one, help connect your tactics and goals (defined by the needs statement) to the real cost to do the work. Because the budget often appears at the end of a proposal, think of it as the summation, a chance to leave a lasting good impression.
Share your hope for the future.
Feel free to share your budget aspirations within the proposal, even if the grant maker doesn’t ask for it. This could either be through a two-year budget spreadsheet (current and projected for next year), the budget narrative, or an attached infographic.
For the budget narrative, relate how you’ve grown and where you hope to be in one to five years. Budget growth is part of the overall case for why your organization is a strong investment. Foundations want to support nonprofits that are going from good to great.
Head off concerns.
If there are pitfalls or potential negative stories surrounding your organization’s budget or financial health, be upfront about them. Grant makers want to hear about your challenges from you, not from other foundations or donors.
Honesty and openness are your best friends in these interactions. Disclose any concerns at the first meeting, and use the budget narrative to be transparent about them going forward. It’s the grant maker’s job to determine whether an issue matters. Your job is to be honest about the situation and recommend a solution. Hiding financial issues will always provide a barrier to funding; being honest won’t.
Audit, Budget, 990: A Powerful Trifecta
These “big three” financial documents give decision makers the best read on an organization’s financial health. You’ll want to make sure they’re updated and complete.
The annual audit ensures that funds were used appropriately and provides an objective viewpoint on a nonprofit’s finances. The budget explains how funds will be spent over the next year or two. The Form 990 shows the organization’s financial history and provides key indicators such as fund balances and reserves, deficits or surpluses, and spikes or falls in revenue.
When reviewing these documents, a program officer or grant reviewer might think about the following questions:
Did the auditor confirm that resources were used in accordance with best practice over the last year and/or highlight any areas of concern?
Am I clear about where funds are being used this year and are there any concerns?
Is there anything missing from the financial history, or do I see anything that raises red flags?
Does the nonprofit have a fund balance, and is it able to generate a surplus or add to reserves every year?
Does the organization have strong funding prospects — other donors who see its potential and are willing to share risk? Does it draw unrestricted money to support overall sustainability?
Mastering budget design can boost your proposal’s chances of being received well by a prospective grant maker. In every proposal process, as the applicant you must equip a program officer to be your advocate inside the foundation. A strong budget and financial narrative will help you stand stronger in the eyes of trustees and other decision makers.
Tyler Nickerson is director of investments and state strategy at clean-energy grant maker the Solutions Project. You can find him on Twitter at @tylerwnickerson.
