Two fundraising assignment

Step 8 Developing the Proposal Budget

THIS STEP PROVIDES THE BASIC TOOLS to develop an effective program (or proposal) budget. It is important to approach this step in a way that tells a story. Yes, a budget is the proposal narrative reflected in numbers. Approaching the development of a budget through this lens will ensure continuity. This chapter will also introduce terms and definitions that will help grantseekers to understand the various elements of a budget. Finally, this step provides budget development information for both foundations and public funding grant opportunities.

General Budget Overview

When applying for grants from foundations, typically one of two types of budgets will be requested, consistent with the type of grant funding being sought: a general support (GS), which is also referred to as general operating support (GOS), budget or a program (or project) budget.

General Support Budget

A general support budget details the income and expenses for the fiscal year – or the grant period – in which the funding is being requested. It should directly reflect the overall goals, values, and intended impact of the organization.

A few basic guidelines include:

· Organize income and expenses into line items that match the work and activities. This is where reflecting the overall goals, values, and intended impact of the organization is important, and reinforces the organization's commitment to the work.

· Capture all staff costs. If there is staff, create a line item for employee benefits and taxes, including payroll tax. Social Security, Medicare, and unemployment insurance are all necessary overhead expenses. Other common employee expenses are medical insurance, and disability insurance. These expenses are typically pooled for all employees into a single line item.

· Include D and O liability insurance. Many grant funders require that an organization have directors and officers liability insurance. This insurance covers board members who suffer injuries or property damage, or who might be involved in a lawsuit for sexual harassment, discrimination, mismanagement of funds, or wrongful termination. It is important to reflect this expense as a line item in the budget.

· Little things add up, so be sure to include them. Annual operating budgets should include indirect costs such as accounting, auditing, property and liability insurance, evaluation, and portions of staff time required to administer projects, as allowable by the funder. Grant-funded activities can easily eat into general overhead budget.

· Create a modest cushion. Unexpected expenses are an everyday part of nonprofit organizations. Include a bit of cushion in an annual operating budget for such expenses and shortfalls. A cushion is particularly important for start-up organizations that may lack predictable income streams. A few funders will allow a “miscellaneous” line item for this purpose. In general, though, you can include a small cushion to existing line items (although not line items like personnel that are based on specific salaries for a specific number of staff).

Helpful Hint

Be sure to research what an acceptable indirect cost rate should be. Some funders have already established their allowable indirect cost rate for any grants they fund. For instance, if a funder will only allow an indirect cost rate of 12 percent, but the organization's indirect cost rate is 20 percent, the program will have to offset the 8 percent loss in overhead costs in other areas of the budget.

Program Budget

An organization may have several programs that it is responsible to manage throughout a given year. A program budget is a subset of the annual operating budget and will therefore fall under the purview of an organization's annual operating budget. A programmatic budget is specific to a body of work and should only reflect the costs associated with said body of work. Even a single-issue organization may have several different programs it has implemented in service to achieving its mission. There may be programs specific to different geographies, demographics, and other factors that would warrant separate program budgets. If this were the case, each program would have its own separate budget reflecting the expenses associated with each one.

For the purpose of this workbook and the sample proposal used throughout, the focus will be on a GS budget that will accompany the proposal.

Basics of a GS Budget

Development of a general support budget should involve the executive director, as well as the finance staff person. The budget includes all expenses of the organization and is essentially the organization's annual operating budget.

The following is a list of stages that are necessary to develop a program budget.

· Stage 1: Review, Research, and Organize

· Stage 2: Develop the Budget

· Stage 3: Review, Update, and Review Again

· Stage 4: Develop the Budget Narrative

Incorporating these stages into a budget-development process will ensure a comprehensive general support budget that reflects thoughtfulness and planning. Funders will pay close attention to a grantseeker's efforts to adhere to their budget requirements, document projected revenues, and research relevant expenses for their proposed grant request.

Stage 1: Review, Research, and Organize

The first stage is a two-part process that starts the budget formulation process. Part one involves reading the grant application for understanding and clarity, and part two explains how to research and organize the information to be included in the budget. Let's begin by understanding the grant application budget review process.

Review the Grant Application for Budget Requirements

Before investing in the development of the budget and selecting a budget tool (example: MS Excel or Google Spreadsheet), it is important to read through the grant application and determine what is required. It is standard for funders to provide or specify a document or tool that should be used to capture the budget, as well as to identify or list the information to be included as attachments. As a potential grantee, it is important to follow the instructions provided in the grant application, supplementing it with any information (as allowed by the funder) that will make the organization's financial needs clear.

Important items to consider in the grant application guidelines before developing the budget may include the following:

· A budget template with instructions including whether it is mandatory to use the form.

· Instructions on the budget categories or level of the budget details and how those details should be recorded.

· Items that should not be included in the budget.

· If a budget narrative should be included and in what format (see the definition later in this chapter).

· Clarity around the percentage of “indirect” or “overhead” an organization can include in the budget. This will vary greatly from funder to funder, as well as for public funding at the local, state, and federal levels. See the public funding section of this chapter for more details.

Although this stage might appear tedious, it is necessary so that grantseekers develop budgets that mirror the narrative in the written proposals. This alignment between written proposal and corresponding budget will more fully sustain a funder's attention, and shows that the organization has its financial house in order. By following directions, an organization demonstrates its level of commitment to effectively stewarding the funding being requested.

Now that the budget instructions and specific requirements have been properly read and digested, it is time to begin to research and organize budget details.

Helpful Hint

Consider using a spreadsheet to document the information researched and help track and organize the information collected.

Research and Organize Budget Information

The process of researching, collecting, and organizing the budget data is often underestimated when developing the budget. Before beginning to develop the budget, there are several actions that should occur:

· Identify the types of revenues and expenses that are included in the organization's budget.

· Research, develop, and collect estimates

· Organize the data to facilitate the budget-development process (next step).

· Keep in mind that budgets consist of good faith estimates – a best guess based on solid research.

Remember: If an organization wants its budget to tell a compelling numerical story of their grant proposal, it needs to be both thorough and accurate. This will take time, so build that into the grant development timeline.

Stage 2: Develop the Budget

Now that the budget requirements for the grant proposal are clear and budget information is organized, it is time to develop the budget. The next step is to deploy the information gathered from Stage 1. It is safe to assume that the funders will provide an online proposal budget spreadsheet, so the more organizations are familiar with spreadsheet software, the easier it will be to navigate the online (and paper for any outliers) budget spreadsheets.

Establish the Budget Period

Every budget has a beginning and ending period called the budget period. This budget period for a grant will be one of these three:

1. The organization's fiscal year

2. The program year (specific to program grants)

3. The grant period (which funders sometimes define)

For the purpose of the example in this work, the budget period for the Alyson Eats Future Foundation proposal is January 1, 2020 through December 31, 2020.

Helpful Hint

Keep in mind that some grants may cover multiple years, and require a multiyear budget. Make sure the budget is consistent from year to year and includes adjustments, like cost-of-living adjustments for staff and possible product increases.

Estimate Revenues and Expenses

In Stage 1, all revenues and expenses that should be included in the budget were identified. At this point, most revenues and expenses will be estimates and should be documented as such. There are instances when actual revenue and expense amounts are known and, if so, those should be included as actuals.

Revenue is income identified and/or already committed for the program such as memberships, fee-for-service, other grants, and other fundraising endeavors such as special events and individual giving. Depending on the grant, an organizational budget may contain several different revenue streams. A list of potential revenue sources includes other foundation support, government funding, and individual funds. In addition, items like in-kind donations of supplies, services, and human capital and other volunteer services should also be listed as revenue sources.

The revenue sources included in the budget should be estimated according to the expected or known revenue stream. For instance, if the revenue is based on memberships or fee-for-service, the amount can be calculated as follows:

or

Example: Revenue Budget Table for Alyson Eats
Revenues	Projected
GS support from foundations (Open Communities Fund; Southside Community Foundation; Jane Irving Family Foundation; individual donors)	$250,000
Restricted/Programmatic support	$225,000
Abundant Living Community Church	$10,000
Membership and T-shirt sales	$10,000
Facilities costs in-kind	$10,000
Volunteers – 50 × $500 mo. each average (in-kind support)	$300,000
In-kind food donations	$350,000
Total	$1,155,000

Expenses are the costs of those items required to sustain the program. They are a critical piece of the budget because they identify the costs necessary to manage and sustain a program. Expenses can be recorded in two categories – direct and indirect costs.

Direct Costs

Direct costs include all expenses that can be identified and charged, such as personnel, fringe benefits, consultants, subcontractors, travel, equipment, supplies and materials, communications, computer time, and publication charges.

These costs should be itemized in the budget, with the exception of the staffing line item, which should include staff and fringe. In Stage 1, we discussed researching, developing, and collecting revenue and expense estimates. This section further highlights why this stage is necessary.

Because these costs are directly related to the operations of the organization, they should be easy to identify. Here is a short list of potential expenses that may be listed as direct costs or expenses:

· Staff and fringe

· Travel and lodging

· Supplies and materials

· Equipment and technology

· Food and beverages

· Facility rental

Calculating direct costs should be kept simple and straightforward. For instance, Alyson Eats employs nine people: one management staff, three full-time staff, and five part-time staff:

Example: Estimated Salary Table for Alyson Eats
Role	No. of Staff	Monthly Wages	Yearly Total *
Executive Director	1	$5,000	$60,000
Lead Program Staff	3	$3,500 ea./$10,500	$126,000
Half-time staff	5	$2,000 ea./$10,000	$120,000
Fringe for staff*	9		$85,680
Volunteers – in-kind**	50	$500 ea./$25,000	$300,000
Total	59 (50 vols)	$50,500	$691,680

* Fringe benefits are calculated on the nine paid staff only at 28 percent of $306,000, which comes to $85,680. The $306,000 amount is the sum of the Executive Director, three Lead Program Staff, and five Half-Time Staff salaries.

** Volunteer line represents an in-kind contribution. Since volunteers are not staff, no fringe expenses are associated with this line item.

Yearly total calculation = Monthly Wages × 12 Months + Fringe line item

The “Total” amount listed in the table (minus the $300,000 for volunteers) is the number that will be included in the Salary row of the budget spreadsheet.

Example: Alyson Eats Annual Operating Expenses FY2020
Expenses	Projected
Staffing and Fringe (28%) for nine permanent staff (one manager, three full time program, five half-time)	$391,680
Facilities – in-kind	$10,000
Board support and D&O Insurance	$10,000
Volunteer support (in-kind)	$300,000
Food and Supplies	$150,000
Food and Supplies (in-kind)	$350,000
Programmatic supplies and marketing materials	$20,000
Evaluation	$5,000
Indirect expenses*	$115,336
Expense Subtotal	$1,352,016

* Indirect expense amount is calculated at 20 percent of all non-in-kind line items.

Helpful Hint

In some instances, personnel costs are split between programs because staff may spend only a portion of their time on a project. If this is the case, the personnel costs should be determined by using the percentage of time spent on the program budget in question.

Indirect Costs

Many established nonprofits already have an indirect rate that can be applied to the budget. This is a helpful way to be sure indirect costs are being appropriately allocated across programmatic areas within the organization.

Indirect costs – also known as overhead costs – are costs that are incurred for common or joint objectives of the organization (or program), and which, therefore, are shared throughout every programmatic and operational budget. This includes, but is not limited to, building operations and maintenance, laboratory space, library service, utilities, and administrative services. The following is a short list of potential indirect costs or expenses. Indirect costs may include the following:

· Utilities

· Information technology support

· Audit or legal staff

· Rent

· Administrative support

· Equipment rental

This estimate is usually determined by using an indirect cost rate.

Helpful Hint

Let's assume the organization's indirect cost rate equals 20 percent. Because this rate was already established within the organization, Alyson Eats' indirect costs can be calculated. If Alyson Eats' direct costs total $576,680, for example, the indirect cost amount that will be included in the budget is $576,680 × 20 percent or $115,336.

Keep in mind  that the indirect cost rate calculation is only useful when there are some expenses that are shared among programs or projects and the organization is trying to determine only those programs' indirect costs.

In-Kind Support/Donated Goods and Services Many organizations operate programs using a combination of paid employees and purchased goods and services, combined with volunteers and donated goods and services. The volunteer time and donated goods and services are considered support and are a vital part of the budget process. They should be included as both revenues and expenses where applicable. The following (short) list of items can be considered when including in-kind contributions:

· Volunteer or staff time of those unaffiliated with the organization and therefore not included in the staff budget line. Note that some companies participate in what are referred to as “loaned executive” programs, where company staff wanting to contribute their time and expertise to directly benefit the community are “loaned” to a qualified nonprofit organization that can effectively absorb the additional support.

· General volunteers.

· Donated services, including food, printing, marketing, accounting, and other services.

· Donated items including office equipment, vehicles, and other tangible items used for the program.

· Donation of office or facility space (rent, utilities, and renovations).

There are several factors that should be considered when estimating the costs of these items. For instance, volunteer and staff time estimates can be calculated using the average amount an organization would pay someone providing the same or like service multiplied by the number of hours performing the service, as shown in the formula below:

In-kind contributions should not be ignored or taken lightly during the budget process. There are many benefits to including these items in your budget, including:

· Reduces the overall cash outlay for program expenses.

· Expands resource capacity to sustain an organization's program.

· Opens the door for community partners to learn about and support the organization's program or cause.

· Demonstrates to the funder the value of the donor and volunteer contributions.

As mentioned earlier, in-kind contributions are typically shown as revenues and expenses to create a net-zero effect. For example, if a volunteer contributes $2,000 worth of her time, that amount should be shown as $2,000 in volunteer support revenue and $2,000 in volunteer support expenses.

It is important that in-kind contributions are net-zero when balancing the budget because noncash income should not be used to offset cash expenses.

Record Budget Information Once the budget categories have been identified and researched and revenues and expenses finalized, it is time to record this information. The information should be listed in an easy to follow format, preferably using a spreadsheet tool selected early in the process.

Be sure to follow the grant application guidelines regarding the format in which this information should be recorded. Not following instructions is the surest way for a proposal to be declined.

Stage 3: Review, Update, and Review Budget Again

This stage in the budget-development process is a commonsense yet often-missed step. Simply put, grantseekers need to review the budget for formula and number errors. This is a necessary step that should not be neglected. Build in the time for the finance staff person to:

1. Double-check that the staffing and fringe are accurately allocated to the program.

2. Ensure that all other line items are appropriate.

3. Avoid missing expenses that should otherwise be included in a GS grant budget.

4. Make sure organizational overhead is included at the maximum level allowed.

5. Ensure that the format of the budget is clear, understandable, and that it fits correctly within the grant guidelines.

6. And double-check that all calculations are correct.

Stage 4: Develop the Budget Narrative

Now that the budget spreadsheet is complete and the numbers reviewed and verified, a budget narrative (sometimes called budget justification) should be developed to explain how the numbers were derived, as well as verify what the numbers represent.

After the budget is developed, a detailed narrative of the significant items in the budget should be written. In its simplest form, this document provides a written narrative for budget items that are not self-explanatory, and require some context about how expenses and revenues were derived and why they are needed. For instance, a line item that says “Consultants—$10,000” tells the funder little, but a narrative saying “two consultants at $5,000 each to videotape the classroom sessions” makes it clear. A budget narrative shows that the organization put thought and care into the revenues and expenses included in the budget. Here is a simple example of what Alyson Eats' budget justification may look like:

Sample Budget Justification

The total budget required to support Alyson Eats for the 2020 fiscal year is $1,352,016, inclusive of $660,000 in in-kind volunteer support, food, and supplies. Additional details of the budget are described below:

Alyson Eats has outlined its sources of projected revenue needed to reduce hunger among the people we serve for one year. The following is a list of committed funding for the year to date:

Example: Revenue Budget Table for Alyson Eats

Revenues	Projected
GOS support from foundations (Open Communities Fund; Southside Community Foundation; Jane Irving Family Foundation; individual donors)	$250,000
Restricted/Programmatic support	$225,000
Abundant Living Community Church	$10,000
Membership and T-shirt sales	$10,000
Facilities costs (in-kind)	$10,000
Volunteers – 50 × $500 mo. each average (in-kind support)*	$300,000
In-kind food donations	$350,000
Total	$1,155,000

* Alyson Eats receives generous volunteer support from 50 dedicated individuals, which is valued at $500 per month per volunteer, for a total of $300,000 in in-kind staffing.

Again, the budget justification is typically documented in a narrative format. Depending on the funder's requirements, the budget narrative could be included as a paragraph in the proposal, added to the bottom of the budget document, or presented as a supplement to the budget. Because there is likely to be limited space, explanations should be concise and explain those items in the budget that require further clarification.

The Budget: Final Thoughts

Now that the building blocks for developing the proposal budget are in place, there are a few additional points that should be remembered:

· Read and understand the type of budget the funder is requiring for the grant application.

· Provide a true and honest picture of expected revenues and expenses.

· Justify in writing, to the extent possible, any budget items that stand out as unusual or costly.

Remember: focus on telling a story with the budget that directly reflects the written proposal. The presentation of the budget is equally as important as the presentation of the overall program that will be supported by the grant.

Program Budget Do's and Don'ts

The following is a list of Do's and Don'ts when developing the grant application's program budget.

Do …

· Understand that a budget is an important part of the grant application process.

· Read the grant application for budget requirements, including formats and specific instructions.

· Identify elements to include in the budget based on organizational needs.

· Collect and record data to substantiate revenues and expenses listed in the budget.

· If allowed, provide a budget narrative to explain any major funding variances or requests.

· Itemize revenues and expenses to the extent the funder's budget template allows.

Don't …

· Overlook the importance of developing a logical and reasonable budget based on the funder's instructions.

· Include items that are not specifically requested in the grant application.

· Lump all revenues and expenses together; rather, itemize for clarity.

· Forget to review and check all amounts, formulas, and calculations in the final document before submitting.

Take some time to fill out Worksheet 8.1 to help organize the information that will go into your budget. Once you've drafted a budget, ask yourself the Budget Review Questions.

    WORKSHEET 8.1: Worksheet Revenue and Expense Budget

	Cash Required	In-Kind Contributions	Total Budget
REVENUE 1. Foundations 2. Government 3. Corporations 4. Individual contributions 5. Donated printing and supplies 6. Volunteer services 7. Other (specify): Total revenue EXPENSES 1. Salaries (prorated if less than full-time) 2. _______________ 3. _______________ 4. _______________ 5. _______________ 6. _______________ 7. Payroll taxes and benefits (percentage of salaries) 8. Bookkeeping contractor 9. Other (specify): Total personnel 10. Office rent (percentage for program) 11. Supplies 12. Printing 13. Utilities 14. Internet/Telephone 15. Equipment 16. IT 17. Copy services 18. Postage 19. Travel 20. Membership dues 21. Other (specify): Total nonpersonnel Total expenses

Winning Grants Step by Step, Fifth Edition. Copyright © 2019 by John Wiley & Sons, Inc. All rights reserved.

Step 9 Writing the Organizational Background Component

IN ADDITION TO THE PLANNING SECTIONS of the proposal, grantseekers need to develop a clear, concise organization background statement, the purpose of which is to establish a nonprofit's credibility. Using the example from the Alyson Eats proposal, as well as the worksheet for this step, grantseekers will learn how to present their organization's strengths to funders.

Purpose of the Organization Background Statement

What are the mission, values, and other distinguishing characteristics of the organization? And what is it about this organization that enables it to execute on what it promises to deliver? The organization background component answers these questions and more. This proposal section provides credentials for the organization and its ability to fulfill its stated goals and objectives.

Funders may refer to this section as the organization background or the applicant description, but the same basic information is expected regardless of the title. This component of the proposal should allow the reviewer to get a strong impression that the organization:

· Meets an unmet need or fills an essential role in the community.

· Is fiscally responsible.

· Is well managed.

· Provides important community services.

· Understands the community it serves.

· Reflects that community in its board and staff.

· Has the respect of the community.

Content of the Organization Background Component

Organizations should include the following:

· The history of the organization, including when it was founded.

· The demographics of the community served, followed by the ways in which both the board members and the staff reflect those demographics. This is important information to share, as funders want to ensure that the nonprofit is reflective of the community it seeks to serve.

· Descriptions of innovative programs or special services the organization provides as well as any awards, credentials, and/or special recognition.

The primary goal in crafting this section of the proposal is to establish credibility with potential funders. Organizations should pay attention to what is best to include, given the particular proposal and the funder. The guiding question should be, “What is the key information that this funder needs to know about the organization and its qualifications to solidify the case for support?” For example, when requesting funding for a technical project that makes use of new ways to engage clients online, information about the organization's previous experience in web-based communications, as well as the qualifications of specific staff members who would be responsible for the project, would be critical to reinforcing the nonprofit's capacity to undertake the proposed project. If proposing a collaborative project, thought should be given to using examples of other collaborative projects in which the organization participated, as well as the successful outcomes derived from those collaborations.

Think about the essential components of the organization background and resist the desire to include details that take up valuable space but that do not necessarily add to making the case for an organization. For example, organizations should include a high-level summary of how many board, staff, members (if applicable), and volunteers it has as a part of this proposal component. Supporting documents such as a board roster and staff bios are many times allowed – in fact, required – as appendices to the grant proposal (see Step 11).

If the organization is a start-up, focus on the qualifications of the staff and board to provide grounding and credibility for the start-up endeavor. As a start-up, it is essential to state the unmet needs or unique problem the organization is being created to meet.

Tips for Writing the Organization Background Component

Background Statement

Start with why and when the organization was founded. Its mission statement should be front and center. Next, focus on explaining what the organization does, how it goes about its work, and whom it serves.

This is one of the few sections of a proposal that can be created as a standard component and used repeatedly. Note that grantseekers will be required to make small edits to tailor the background statement for individual funders or to highlight items of special interest to a funder. Otherwise, this section is standard for most proposals.

Here is the organizational background component from Alyson Eats:

Sample Organizational Background Component

Alyson Eats began in 2002 as a joint project of the state university's School of Social Work and the city's Girl Scouts. At the time it was called Feeding Our Neighbors. Every other Friday, the program's volunteers would provide a free, hot meal for hungry or homeless people or anyone who walked in. The dining halls varied as the volunteers were able to secure donated space – a church kitchen one week, a theater basement two weeks later – but they were always so full that volunteers had to turn people away.

It soon became clear that Feeding Our Neighbors, well-meaning as it was, missed the mark in some important ways. The rotating locations made it hard to find; the people providing the service had little input from the people who needed the service regarding how they could make the program more effective and accessible; and Feeding Our Neighbors only functioned during the school year. Despite this, the fact that the dining halls were full to bursting each time revealed just how much hunger there was in Alyson – and that the city needed a much larger and more comprehensive program.

In 2004, Alyson Eats was established as a 501(c)(3) organization, with the help of the state university. The organization has grown from a staff of one to a staff of nine (four full-time and five part-time), with the ability to help ease hunger in numerous ways for thousands of Alyson residents each year. Our board of directors, once composed largely of volunteers from the north side plus a few south-side clergy members, now has most members from the south side who have been personally affected by hunger. Other members of the 12-person board represent our corporate and institutional partners and/or bring specific expertise or resources to the organization. The board is 75 percent people of color. Our executive director grew up hungry in Alyson and is the author of the memoir Coming Up Empty.

Using Worksheet 9.1A, the Organization Background Exercise, gather the information for this section of your organization's proposal. See how Alyson Eats used the worksheet in 9.1B.

Next, write the narrative, using the Sample Organization Background Component as a guide. Finally, review the work using the Organization Background Review Questions. Organizations should be able to answer yes to each question.

     WORKSHEET 9.1A : Organizational Background Exercise

[Organization Name]

Location

 

Legal status

 

Date of founding

 

Mission statement

 

Target population

 

Programs

 

Partnerships

 

How unique

 

Accomplishments

 

Special recognition

 

Summary of need statement

 

Financial

 

Board and staff

 

Winning Grants Step by Step, Fifth Edition. Copyright © 2019 by John Wiley & Sons, Inc. All rights reserved.

     WORKSHEET 9.1B : Worksheet Organizational Background Exercise – Alyson Eats

[Organization Name]

 

Location South side, city of Alyson

 

Legal status 501(c)(3)

 

Date of founding May 5, 2004

 

Mission statement The mission of Alyson Eats is to reduce the suffering of hunger among residents of Alyson's south side.

 

Target population 130,000 people on Alyson's south side who are experiencing or at risk of hunger

 

Programs Eating Is a Right – food pantry and distribution service Every Youngster Eats – lunches for children during summer Sharing Is Caring – recruitment of food, donations, volunteers Food for Life (pilot program) – teaching high school students how to shop for and prepare food

 

Partnerships Alyson Clergy Coalition Alyson High School Anti-Hunger Coalition Delta Sigma Theta Sorority Everybody's Got a Right to Eat South Side United State University

 

How unique Oldest and largest food pantry on the south side