Writing a Budget Narrative

Writing a Budget Narrative

This article was originally published on the Charity Channel

Also known as a budget detail, budget description, or budget justification, the budget narrative explains what the numbers in the budget table or spreadsheet represent and how you arrived at them. The benefit of preparing a budget narrative is that it requires you to get down to your project’s nitty-gritty details by laying out who will accomplish what and when, as well as how you arrived at costs.

Along with the budget, the budget narrative tells a funder exactly how a nonprofit will spend its investment, item by item. From a funder’s perspective, the budget narrative ensures:

  • You did your research and that your project costs are reasonable and well thought out.
  • Your project is within the funder’s giving range and/or it includes a plan to seek additional funding.

When to Start Writing

Since many of your budget’s calculations must to be explained in the budget narrative, you can save time by writing your budget and budget narrative simultaneously. The sooner you start it, the better, is our advice to clients. Of course, some project planning work needs to happen first, but the sooner you start looking at the resources you will need and begin pricing them out, the faster your project will move from the realm of ideas into reality.

Basic Cost Categories

Most government agencies put constraints on what can be included in the budget and on maximum request amounts, indirect costs, etc. Some federal proposals ask for a very detailed budget narrative, requiring that you to break out the budget narrative by project activity, discuss cost-per participant, and explain such things as how administrative (indirect) costs support project goals. Foundations are typically less prescriptive. However, for both public and private sector grants, the budget narrative should state clearly and concisely where the amounts in each budget category will come from and what they will cover. All expenses should relate clearly to the project narrative. Additionally, the budget narrative should show clearly which budget items will be covered by matching funds or leveraged resources.

Your budget narrative should detail:

  • Personnel – Include the hours, wages, and duties of each grant-related position.
  • Fringe benefits – List all employment related costs, such as FICA, workers compensation, health insurance, and retirement benefits.
  • Travel – Cover mileage, airline tickets, taxis, car rentals, mileage reimbursements, parking fees, tolls, tips, and per diems for lodging and meals.
  • Contracts – Specify contract services, such as leases, consultants’ fees, and trainings.
  • Equipment – List all purchases for items with a life span of (usually) three years or more, such as furniture, computers, copy/fax machines, lab equipment, telephones, and software.
  • Materials/Supplies – Include short-lived items needed to run an office, such as paper, envelopes, pens and pencils, CDs, and staples, etc.
  • Capital Expenses – Include the purchase and/or construction and renovation of land, buildings, and accompanying fixtures.

Unusual Expenditures

If the project is small, costs are straightforward, and the numbers tell the story clearly, you may not need a budget narrative. However, if your budget contains any unusual items, use your budget narrative to explain them to the funder. For example, a fire and safety proposal budget that includes a purchase of “Pluggie, the talking fire hydrant,” will benefit from a budget narrative that explains: “Pluggie is a tool for the Fire Prevention Team to use in teaching fire safety. Operated by remote control, Pluggie moves, speaks, and plays cassettes. Team members will use Pluggie in working in elementary school presentations.” This sort of thoroughness shows the funder that your project team has thought through all its proposed expenditures.

Budget Narrative Structure

Most federal proposals explain how to structure the budget narrative. However, private and corporate funders often leave this decision up to you. For simple projects, one option is to fold the budget narrative into the budget, inserting a brief explanation under each item. In this case, the budget narrative may be included on a spreadsheet. 

Another option is to number items in the left margin or attach footnote-style numbers to each line and to follow the numeric budget with: "Notes to the Budget.” Regardless of the format, the categories in the narrative should use budget headings, follow the exact order in which the items are listed in the numerical budget, and include semi-totals.

Sample Budget Narrative

A word about abbreviations: Don’t be afraid to use them, especially when it is important to conserve space. Mathematical symbols and equations can also be a part of a budget narrative. The guiding rule to follow is clarity.

A. Personnel – List each position that pertains to the proposal. The cost calculation should show the employee’s annual salary rate and the percentage of time devoted to the project. Compensation paid for employees engaged in grant activities should be consistent with that paid for similar types of work within the organization.

  1. Project Director: $35,000/year @ 100% = $35,000. The Project Director currently oversees the program and will spend 100% of her time hiring, training, and supervising staff. This individual’s annual salary will be covered by grant funds for the 12 months of the contract.
  2. Two School Safety Officers: 2 x $35.00/hour x 3 hours/day x 5 days/month x 12 months. (Covered by matching funds.)

B. Fringe – Fringe benefits are based on the applicant’s established formula and are only for the percentage of time devoted to the project. It is important to explain what is included in the benefit package and at what percentage.

  1. Director: $65,000 x 18.55% = $11,115. A request of $6,493 will cover the fringe benefits for the Director at a rate of $18.55%. Benefits include FICA @ 6.2%, Health/Life insurance @ 8.9%, Workers comp @ 2.0%.
  2. Assistant Director: $45,000 x 18.55% x .25 = %2086.88. (A breakdown of the fringe rate is included in the Budget Detail Worksheet.)

C. Staff Development – These may include required or desired trainings, workshops, or classes for staff. The project-related purpose should be noted and explained.

  1. The Program Assistant will attend continuing education classes at the local community college in the area of social work and administration for two semesters to ensure state-of-the-art wraparound case management. 2 semesters x 2 classes x $275.00/class = $1,100.00.

D. Travel – Explain the reason for travel expenses for project personnel (e.g., staff to training, field interviews, advisory group meeting, etc.) and show the number of trainees and unit costs involved. Identify the location of travel.

  1. Regional/Statewide Meeting: Three people to funder-required three-day training in Destination City.
    • 3 people x $500 airfare = $1,500
    • 3 people x 3 days x $40 per diem = $360
    • 3 people x 2 nights x $100.00 hotel = $600

E. Equipment - List non-expendable items to be purchased. Explain how the equipment is necessary for the success of the project and, if requested, the procurement method to be used. The organization’s own capitalization policy for equipment can be used unless the funder provides one of its own to follow.

  • One computer package including laptop, printer, scanner, and Word Programs will be purchased. The computer will be housed in the administrative office and will be checked out by staff when they go out into the field. It will be networked into the office network for the purpose of maintaining client databases and performing administrative work connected to the project.

F. Supplies - List expendable items by type and show the basis for computation.

    1. Meeting Supplies: For administrative meetings, workshops, etc. $75.00 x 12 months = $900.00.
    2. Office Supplies including binders, file folders, printer paper, toner, staples, etc. $100.00 per month x 12 months = $1,200.00.
    3. Phone and Internet Service: This service will be used to stay connected to parents, community collaborators and staff. $125.00 per month x 12 months = $1,500.00.

      G. Consultants - Provide a description of the product or services to be provided by the consultant and an estimate of or detailing of exact cost. Indicate the applicant’s formal, written procurement policy unless asked to follow a different policy. Include: a) Consultant Fees (for each consultant enter the name, service, hourly or daily fee, and estimated time on the project) and b) Consultant Expenses (list all expenses to be paid from the grant to the individual consultant in addition to their fees, such as travel, meals, lodging, etc.).

      1. The Computer Instructor will conduct four computer-training sessions weekly in the computer lab. The Community Outreach Trainer will develop a curriculum for Community Outreach and train neighborhood associations on the curriculum. The 2.5 FTE Tutors will tutor children at the after school. 
        • Computer Instructor: $11.10/hour x 26 hours/week x 52 weeks = $15,000

      H. Other Costs – List items, such as rent, reproduction, telephone, Internet, janitorial or security services, by major type and show the basis of the computation. For example, provide the square footage and the cost per square foot for rent, and provide a monthly rental cost and the number of months rent will be needed.

      1. Rent for Computer Lab:  $2.50/square foot X 650 = $1,625/month x 12 months = $19,500 (match).
      2. Space – Includes cost for monthly rent and utilities for the location that is the locus of services and activities. The cost is pro-rated at 50% because Funder X has awarded us a grant that covers the other 50% of the cost.
        • Rent: $600.00/month (pro-rated 50% of usage) $300.00 x 12 months= $3,600.00.
        • Utilities: $300.00/month (pro-rated 50% of usage) $150.00 x 12 months= $1,800.00.
        • Repair/Maintenance: $50/month x 12 months= $600.00.

      I. Administrative or Indirect Costs – Some funders allow for indirect costs, which represent the expenses of doing business that are not directly tied to a particular project function or activity. Indirect cost rates distribute those costs among all the work that the nonprofit engages in. Typically a funder will specify the percentage of the request, which may be allocated toward indirect or administrative costs, usually somewhere around 12 or 13 percent.