Grant proposals tell two stories. The narrative talks about the change a grant will enable a nonprofit to make, while the budget explains the cost of that change. In successful grant proposals, those stories are tightly intertwined.
Grant proposals should exude confidence that change will take place and demonstrate your organization’s ability to manage money well. To show financial strength, your nonprofit needs to set itself up for success: operating in the black, having audited accounts, capital reserves, long-term financial goals, and following a strategic plan to avoid chasing inappropriate grants. Strategic plans also can help grant seekers craft more compelling proposals, such as explaining how a two-year grant will help your organization progress toward 10-year goals.
Grant seekers are writing proposals and developing budgets in the midst of a long-running philanthropic debate. On one side, some philanthropists advocate spending to build organizational capacity and say that focusing on projects alone has resulted in a starvation cycle that has hurt nonprofits’ ability to create change. At the Ford Foundation, Jim Gallagher, global director of grants management, says its focus has shifted from line-by-line scrutiny of complex budgets to open, regular communication with grant seekers about their organization’s financial health and sustainability. Yet other philanthropists strive to minimize spending on what they view as wasteful administrative overhead.
Every grant proposal has to thread a path through that debate.
Veteran fundraisers say that before trying to fit a project to match a donor’s desires, you must carefully consider your own needs. “The mistake that I and others often make,” says Andy Posner, founder and CEO of Capital Good Fund, a nonprofit based in Rhode Island that seeks to alleviate poverty and advance green economies in 11 states, “is that we solve the funder’s problem without solving our own problem, which is whatever we need money for.”
Here is some advice offered by grant makers and grant seekers to help you create a strong proposal budget despite the challenges.
Integrate your budget and your narrative.
These two components “need to be very tightly coupled, and they need to be telling the same story,” says Shashank Rastogi, a partner in the Mumbai, India, office of the Bridgespan Group, a consulting firm that works with nonprofits and philanthropists.
When grant makers read a proposal, there should be no surprises when they arrive at the budget.
Alice Ruhnke, president of GrantStation, a company that runs an online database of grant opportunities and provides grant-seeking resources to nonprofits, says that when grant makers read a proposal, there should be no surprises when they arrive at the budget. The grant narrative should set up expectations that activities will have costs, and then the budget should outline those costs.
Similarly, costs should be labeled in the budget the same way they are in the narrative, using the language that a grant maker prefers. For example, if a foundation describes individuals living on the streets as “unhoused” instead of “homeless,” it’s best to use its language.
To make sure a proposal’s story and budget are tightly knit, the person who will be running the project and a financial officer must collaborate in drafting them, experts recommend. Program managers can set realistic goals and deadlines to prevent the need for an extension or additional funds later on. For larger grants, a final check of the proposal is usually done by the organization’s CEO: “My job is to make sure what we’re asking for aligns with where we need cash,” says Posner.
The temptation when writing proposal budgets is to carve off a piece of an organization’s annual budget. But that may not be the most compelling way to share financial data. Instead, Jessica Edwards, chief development officer at the National Alliance on Mental Illness, a grassroots advocacy and educational organization, recommends “putting on your funder hat” when creating a budget.
Try to present the budget in the most compelling way that reflects broader goals the grant maker will readily grasp, she says. Instead of listing a salary for an assistant director, for instance, think about describing what that person will do: project management, outreach to constituents, or technical assistance to community partners. The goal, says Edwards, is to “help funders understand in more rich, colorful detail how their dollars are going to make a difference.”
The goal is to “help funders understand in more rich, colorful detail how their dollars are going to make a difference.”
The biggest mistake nonprofits can make is forgetting to include costs in a proposal and then experiencing “grant seeker’s regret” when they execute that project. Ravi Bagaria, a managing partner of Aria CFO Services in Mumbai, where he has worked with more than 300 nonprofits, recommends setting up a timeline that includes different phases of your project — design, pilot, and scaling up, for example. Listing out the necessary activities in each stage, he says, helps ensure that you include all costs and present budgets in a compelling way.
Mind the details.
Read the funder’s guidelines twice, carefully, before starting a proposal, veteran grant writers say. When a proposal is finished, read the guidelines again to make sure the proposal and budget didn’t drift outside of them. You shouldn’t recycle budgets from one funder to another without making sure the budgets conform to the new funder’s guidelines.
If your organization has multiple projects, be sure to carefully allocate common costs, such as rent, utilities, technology subscriptions, and staff time in a logical way among those projects, says Ritu Jain, another partner at Aria CFO Services.
Paint a portrait of your overall funding, including in-kind donations.
Most grant makers ask for summaries of all financial support your organization receives. Go beyond boilerplate and do your best to demonstrate you have broad, robust funding.
It’s easy to forget in-kind contributions, says Bagaria, of Aria CFO Services, particularly if your organization already has them at the time of submitting a proposal. But budget items like free office or event space, donated catering, or volunteer time are important to include, in part to show community support.
Independent Sector, an organization that seeks to strengthen nonprofits and foundations alike, regularly calculates the value of a volunteer hour in every U.S. state. The current national average is $33.49, so it doesn’t take many of those hours to build a substantial budget line. “With nonprofits, those numbers add up really high, really fast,” says Ruhnke, of GrantStation.
If your organization is seeking project funding from various donors, and you don’t know yet who will provide support, Edwards says, you can simply say the types of funders you are soliciting — corporate social responsibility funds, foundations, individuals, or corporate sponsors seeking to be affiliated with events or reports. Sometimes listing those more specifically can spark a program officer to make a call to a colleague at another organization to encourage support.
Push for “true-cost recovery” with all donors.
One of the hurdles grant writers face is funders who view any costs not directly related to a project as something they don’t want to pay for. “Funders just don’t like admin,” says Posner. “But you have to make the case for it, because you can’t not cover it, otherwise you’ll go under.”
Many grant seekers count themselves lucky to get 15 percent of their budget for indirect costs. Yet a MacArthur Foundation study of more than 130,000 nonprofits found that the minimum indirect cost rate among financially healthy nonprofits was 29 percent. The foundation responded in 2020 by raising its indirect cost reimbursement to that level.
When facing pressure to keep indirect costs low, those who advocate for “true cost recovery” advise nonprofits to try showing their real costs. Some donors may say at the outset that they don’t want to pay for administrative overhead, but when they see it couched as budget items they favor — monitoring and evaluation, collecting data on the impact of activities, or improving financial management technology — they find it more palatable.
When in doubt, negotiate, advocates say. Too many organizations, says Bridgespan Group’s Rastogi, cave the minute a funder objects to indirect costs. “There’s no attempt to have a conversation on why certain costs are essential for nonprofits.”
Rastogi is involved with the Pay What it Takes initiative in India, which, like similarly named initiatives elsewhere sparked in part by a journal article, encourages funders to pay a “fair share of core costs.” A study in India, Rastogi says, found that, “Funders had more flexibility in being able to cover the [indirect] costs that nonprofits had, compared to what nonprofits believed funders had.”
One of the key barriers for funders in supporting the true cost of a nonprofit’s work, says Rastogi, is accurate budgeting. The Funding for Real Change website, although largely designed for grant makers not grant seekers, has language for advocating for true-cost recovery and tools nonprofits can use to calculate their indirect costs.
At the Ford Foundation, which increased its indirect cost rate to 25 percent in 2023, Gallagher encourages grant seekers to question policies mandating low indirect-cost reimbursement. “There’s enough of a narrative out there now, and there’s enough large funders, not just us, who have changed practices,” he says.
Demonstrate sound financial management.
Program officers want to see that potential grantees are managing their money well. To start with, your nonprofit should have safeguards against mismanagement: cash-management policies, conflict-of-interest policies, travel-and-entertainment policies, and processes that prevent large transactions from being approved by one person. You generally don’t need to supply documents outlining such policies with a grant proposal but can mention and provide them if requested.
In proposals, you can state the total number of dollars successfully managed over your organization’s lifetime. Even a three-year old nonprofit with an annual budget of $500,000, for instance, can say it has managed $1.5 million over three years.
A respected auditor should be reviewing your organization’s accounts, and all nonprofits should have, or be trying to build, capital reserves equal to three to six months of operating expenses. One international organization, IFR4NPO, is trying to create global standards for nonprofits to use in presenting financial reports and audited accounts.
It may seem obvious, but you should avoid deficits, even those triggered by timing issues, like late donations. Deficits put organizations on the defensive, making explanations necessary for years afterward. Sometimes a grant letter dated in December even though funds won’t transfer until January can avoid a deficit.
Communicate with the funder and be really honest about your timeline and how things may evolve. That builds trust and reputation.
Even if not prompted to do so, you should carefully consider a project’s financial risks. Many nonprofits operate in the midst of great uncertainty: inflation, severe weather, terrorism, military conflict, and culture wars. Most grant makers prefer an open discussion of risks. “Communicate with the funder and be really honest about your timeline and how things may evolve,” says Edwards at the National Alliance on Mental Illness. “That builds trust and reputation.”
Edwards concedes that project planning and financial planning do not always align perfectly. “Sometimes you are building the plane while you are flying it.”
Her organization, Edwards says, maintains both scale-up and scale-down plans that help it add activities, such as marketing or mini-grants, to its many state organizations and local chapters in the event of getting funding more generous than expected or to cope when desired funding does not come in. Such readiness for different scenarios came in handy in 2022, when philanthropist MacKenzie Scott donated $30 million to the alliance, an amount equal to its annual budget. The organization immediately set aside $5 million for its grassroots affiliates. Edwards says the rest of the money will be used for an endowment to ensure long-term financial stability of the organization and to grow its impact.