What is a Budget Narrative?

In grant proposals, numbers alone fail to paint a vivid picture of purpose and necessity. This is where the budget narrative becomes the storyteller, weaving tales behind each expense, giving life to the numerical canvas.

For grant professionals, understanding the intricacies of a budget narrative is paramount. Serving as the bridge between financial figures and the mission-driven initiatives they support, a budget narrative is more than just a list of numbers; it’s a compelling story that conveys the essence of a grant proposal.

In this article, we’ll delve into the core of what a budget narrative entails, how a strong budget narrative contributes to a solid proposal, and how to adapt your narrative to specific funder preferences.

Let’s go!

Let’s start with the basics: what is a budget narrative?
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A budget narrative is the accompanying explanation that justifies the costs attributed to each line item or category within your proposed budget.

A well-crafted budget narrative gives context to the numbers; without it, grantmakers may fail to see the necessity of the proposed expenses.

For a grant writer, a budget narrative is the story that will help explain the need for the requested funds and how those funds will be put to use.

For example, if you listed “Travel” as an expense in your proposed budget, your budget narrative is where you can explain in further detail what that entails and justify why it’s necessary.

Resource For You: We know that the budget is often the toughest part of the grant to write. Don’t worry! We have some really great budget templates that you can use to help you get started. Check it out!

It’s important to note that your budget narrative will look different depending on the specific kind of funding opportunity you’re applying for:

• For grant proposals requesting funds for a specific project, your budget narrative will explain the costs attributed to that project or program.
• Alternatively, an organization budget narrative might be requested by funders who want more insight into your nonprofit’s fiscal operations as a whole.

Keep reading and we will explain how you can master both a program budget narrative and a broader organizational one!

When applying for grant funding to support a specific project or program, your budget narrative should provide context to each of the line items in your budget and explain what they will be used for.

Why is this so important?

A well-crafted budget narrative will make funders feel more confident in investing in your project. Without this key piece of your application, funders may feel as though your budget lacks transparency. If they don’t understand why certain expenses are needed, or how they’re related to project implementation, they’re unlikely to move forward with your proposal.

The experts agree! Jacob Chase, CEO at Chase Consulting Solutions, shares this advice:
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“Demonstrate a clear connection between the budget and the project goals outlined in the proposal. Funders want to see that resources are allocated to activities that directly contribute to the project’s success.”

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Without a comprehensive, well-written budget narrative, funders may question the legitimacy of the expenses proposed in the budget.

At its core, the budget narrative is an opportunity for you to turn the numbers from your budget into a compelling story that will convince funders the expenses in your project are justified and necessary.

Nancy Duarte, author of Data Story: Explain Data and Inspire Action Through Story, shares:
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“People are not persuaded by numbers (and certainly not by numbers alone). They are persuaded by drama - a compelling narrative, a sympathetic hero, a mighty challenge to overcome.”

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It’s pretty clear—numbers in a budget form are simply not enough. By leveraging the opportunity that the budget narrative offers you and providing transparent explanations for each cost, you can instill trust and confidence in funders.

What does the actual grant budget narrative look like when you submit it?

The Utah Valley University shares two helpful examples of the different formats you can share a budget narrative with the funder. Keep in mind that you should always clarify with the funder how they want you to present that narrative.

Full Budget Narrative: Explanations For Each Line Item Within The Table

In this example, the budget narrative lives within the proposal. The explanations and the calculations of how they got to the budget amount are detailed in italics.

Note how it breaks down the calculation (“$13.67/hr for 28 hours…” etc.)

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Partial Budget Justification: Table Plus Explanatory Text

In this second example of a budget justification, the tables show the costs for each budget category and then have explanatory paragraphs below. There’s also a second table that explains “Year 1” in more detail.

Depending on the type of budget narrative the funder asks for, you may need more or less of a justification.

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As we mentioned before, some funding opportunities require you to submit your nonprofit’s entire organizational budget in your application—in these cases, your budget narrative should reflect the story and rationale behind your organization’s board-approved budget.

The focus should be on establishing the credibility of your organization, showing funders that you have the capacity and ability to manage their funding successfully.

For example, a funder offering large, multi-year awards will want to see that your organization is fiscally healthy and prepared to responsibly take on more funding.

Here are three ways you can instill confidence in potential funders through your organizational budget narrative:

Showcase Your Gifts & Donations

One way to bolster credibility within your budget narrative is by showcasing your organization’s gifts and donations.

Incorporating these contributions into your narrative demonstrates external support for your organization and underscores the confidence that other donors have in your mission and work.

For example, perhaps a local business donates office space that your nonprofit uses on the weekends. You should include this donation in your budget narrative, explaining how it helps cover certain costs and the community support for your organization.

Why Should They Be in It For the Long Haul?

In multi-year projects, you’ll need to convey your credibility by emphasizing the long-term vision of your organization and the benefits of investing in your work over multiple years.

A key strategy here is to provide a detailed explanation and justification description for each year in your organizational budget, illustrating how expenses align with your nonprofit’s strategic milestones and long-term objectives.

Rachel Grusin, Project Coordinator for the Legal Aid Society of San Diego, reinforces the importance of weaving sustainability into your funding proposal and budget work:
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“Including the “sustainability factor” in your funding proposal is necessary if you want to secure long-term funding and re-procurement. Funders prefer to support sustainable projects with lasting effects and reasonable capacity for expansion, so having a well-defined sustainability plan will give your proposal a significant advantage.”

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By clearly outlining the rationale behind each year’s budget allocations, you can instill confidence in funders regarding your nonprofit’s strategic plan and sustainable impact.

It also provides you with an opportunity to explain any unique or uncommon financial items in your budget, such as a large increase or decrease in budget size from year-to-year, a budget deficit or surplus, changes to the organization’s assets, or new investments.

Aligning Scope of Work With Budget

Finally, in your budget narrative, it’s important to demonstrate that your proposed scope of work aligns realistically with the requested funds.

Here’s some more advice from our friend Jacob at Chase Consulting Solutions:
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“Present a budget that is realistic and feasible. Avoid overestimating or underestimating costs, and clearly outline all budget items (provide detailed explanations for each expense in your budget narrative or justification.) Funders want to see that the organization has thoroughly considered the financial aspects of the project.”

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This level of scrutiny ensures that your budget accurately reflects the resources that you need to accomplish your proposed activities. You want to present a cohesive and convincing case for support that demonstrates a clear connection between proposed activities and allocated resources.

Grant writing sometimes feels like an art—and the budget narrative is no different. It’s a tapestry where you have to weave together both an explanation and justification for the things included in your budget intermixed with compelling stories. Here’s how:

Explanation vs. Justification

Within a budget narrative, you will need to describe each expense, detailing what it entails and explaining how it contributes to the project's objectives and overall success.

Your explanation should address the “what” and “how” questions regarding fund allocation.

Conversely, justifying expenses delves deeper into the reasoning behind each expense, articulating why it is essential for achieving the project's goals and advancing the organization’s mission. Your justification should tackle the “why” question, providing a persuasive rationale for including each expenditure.

This video from the National Council of University Research Administrators provides a great overview of explaining vs. justifying expenses in budgets. In the screenshot below (taken at the 2:45 mark), you can see the budget explanation in black and the justification in green text.

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The explanation and justification sections of a budget narrative should seamlessly complement each other, forming a coherent and persuasive narrative.

When juxtaposed, the explanation sets the context and clarifies the specifics of each expense, while the justification reinforces the necessity and strategic significance of these allocations.

This approach ensures that funders understand not just the practical details of the budget, but also the strategic reasoning driving these decisions.

The budget narrative gives you a great opportunity to justify your budget expenses and demonstrate to funders why those costs are necessary for your project to be successful.

Understanding that different funders have varying requirements and preferences is paramount in crafting successful grant applications.

Rachel Grusin shared with us an important reminder for all grant seekers:
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“Reminder!! Keep in your back pocket that different funders have contrasting rules regarding what they will and will not finance. So, carefully read and understand their guidelines before creating the budget.”

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Reading funder guidelines and tailoring your budget narrative accordingly is of critical importance. This ensures that you’re including the level of detail preferred by each specific funder.

And no matter what kind of budget narrative you create, these tips from Wendy Veloz, Coach and Nonprofit Consultant, can help ensure your proposal stands out to funders. She encourages her readers to make sure their grant applications:

• Has no or few fatal flaws
• Meets the requirements
• Provides proof of eligibility
• Has a strong implementation plan
• Addresses the criteria directly

Government Budget Narratives

Government grant applications demand a huge amount of detail in budget narratives due to their stringent requirements and specific expectations.
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Unlike some private funders, government agencies often require a more comprehensive breakdown of expenses, requiring thorough explanations and justifications for each spending point.

For instance, if there is a line item for “consulting services,” you might be expected to outline the purpose, scope, and necessity of those services within the framework of the project in your narrative.

As grant writers, we’re often thinking that “less is more” in order to fit our narratives into a funder's character limit requirements. However, when it comes to government grants, the opposite can be true—more is more!

Here’s a resource that might help: a budget justification example from a grant to the Department of Education to improve teacher quality. You can see how each budget category is broken down, and the costs are detailed and justified.

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For more examples, you can check out the U.S. Department of Education's website, where they share grant applications.

Foundation Budget Narratives

For the most part, a budget narrative for a foundation proposal will be far less detailed than that of a government grant. Phew, right?!

As you know, foundations can have diverse and varied requirements when it comes to grant applications. The most important thing to remember when crafting a budget narrative for a foundation is to follow the funder’s guidelines and requirements.

The Rose Community Foundation in Denver, Colorado, provides a sample budget narrative for foundation grants that you can look at to get your creative juices flowing.

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It should be clear by now that a well-structured budget narrative plays a pivotal role in securing funding for your nonprofit.

It’s super important to ensure that the budget narrative is not just compelling, but also understandable to individuals outside your organization who will be evaluating the proposal. This means you need to:

• Provide clear explanations and justifications for each expense
• Showcase alignment between the budget and the proposed project’s activities
• Demonstrate your nonprofit’s credibility and expertise

Ultimately, a well-crafted budget narrative helps you secure funding and also serves as a testament to your organization’s vision, impact, and commitment to driving positive change in your community. For even more tips and insights, check out this guide to crafting budgets for winning proposals.