Writing a budget for your nonprofit is a basic requirement for successful functionality and for grant applications. However, it is more than just numbers in a line-item budget. In order to qualify for many grant applications, you must also offer a budget narrative.
What is the difference? Line-item budgets are what most people think of when they think of a budget. It has the revenue and expense categories broken down by segments. It looks like a chart. Numbers align and the budget should balance. This is important for ease of identifying specific costs.
A narrative budget summarizes group expenses that are most important to many funders. Due to their interest in how much of a percentage certain expenses are in your overall budget, it is important to designate these categories clearly with total cost and with what percentage they represent in your overall budget.
The budget narrative can also offer insight into how those numbers were derived and relate to the implementation of the program goals. This narrative justifies the budget expenses and ensures that the funder understands the financial aspect of your program thoroughly. Charity Channel offers a great article that covers examples of budget justifications that you can use in your budget narrative.
Numbers on their own are helpful, but they do not provide context. That can leave room for a lot of misinterpretation and assumptions. Without understanding your planning process, funders may not fully grasp why such numbers are necessary and may deem them unreasonable or unrealistic.
Although you do not need to be overly detailed in the narrative, it can prove helpful to clarify why certain lump sums are justifiable. Be sure to explain any costs that may appear vague to someone who is not in your program reality.
Be sure to include any type of in-kind resources or matching funds provided so that the funder can see all of the various resources and support at your disposal. What you consider free rent is an offset expense covered by an in-kind donation. It has value. Include it. These items should be in both your narrative and line-item budgets.
Items that may be unique to your program, such as travel expenses, should also be discussed in the narrative budget. Justify why this is necessary in order to do the work you do.
Budget narratives are reminders and clarification of your line-item budget details. They help to put a story to the numbers and help to justify your case when requesting funding. Through this process, you help the funder more deeply understand your need and help them to remember why after reviewing numerous proposals requesting funding. Numbers are numbers. Stories put context and life into those numbers. The narrative is essential. It makes your proposal far more competitive and more likely to be funded.