In your grant applications process, you may have come across requests for a budget narrative or for a budget justification. You may be wondering, what even is a budget narrative? And how can I write a good one?

Think of the budget narrative as a guide, one that will assist funders in fully understanding the needs of the grant applicant and will contribute to the overall mission and strategic vision of the nonprofit or organization.

In this article, we will dig into what a budget narrative is and tips and tricks on how to write a good grant budget narrative.

A budget narrative is a supplemental document that justifies each budget item and the budget request within a grant application or project proposal for funders. It also outlines the particular project goals or objectives and how each item requested in the budget narrative will be used to achieve those outcomes.

Essentially, it is a written justification for all of your line item costs.

However, it is very important to create narratives within the budget that have relevance to the overall mission of the grantee.

By definition, a narrative is a story. For a grant writer, a budget narrative is the story that will help explain the need for the requested funds and explain how those funds will be put to use. It will tell the story of the grantee’s organization and highlight its activities as well as successes.

While the length of a budget narrative will vary depending on the organization, this part of the grant application and process will necessitate enough space to adequately describe and detail all the specifics required.

In most cases, the budget narrative portion of a grant application will provide further elaboration on the details, the approximate timeline of expenses, and the breakdown of budget costs.

The narrative is the way to provide an overview of all the technical information about your project, as well as the explanation about the costs for undertaking the project and why the budget is important for the community or mission.

Writing a strong budget narrative requires having a clear and organized plan for your budget. Budget narratives are the justification process for budget items. The budget narrative is often the final step in a budget development process that can illustrate specific budgetary and programmatic needs within a grant application.

The budget narrative explains the assumptions used to develop the budget and provides some justification for the cost. Essentially, it gives you the flexibility to explain what you spent and why you spent it.

For example, you could explain why you included various costs for a specific project. This important document demands specific attention to detail and clear, concise, writing. It is often presented to senior management or a legislative fund granting body and is frequently required by funding agencies.

This document is the budget's most formal and detailed written account of the plan and the budget process. It should, therefore, be carefully constructed, detailed, finely structured, and well written.

To do this well you will need to be organized, meet all the expectations and technical formatting of the grant application, and dedicate the most amount of written justification (and narrative) of costs to the biggest expenses within your budget.

Many organizations prepare a budget narrative as a companion document to the table spreadsheets that summarize the budget process. It is also common to find it included in an accompanying document that provides a more detailed description of the budget plan or process. In these cases, the budget narrative is essentially the budget proposal.

A budget narrative within a budget proposal or grant application is used to help explain the costs associated with each category in the proposed budget. The narrative should start by describing the project or service that is being requested and explain what the project will do and how it will address a specific need.

Though each budget narrative will vary depending on the grant application, they all must be within the format requested by the funder. Though not an exhaustive list, generally budget narrative documents should include:

• Descriptions for every line item within the budget
• Justifications for expenses related to the proposal or grant application
• Elaborations on how indirect costs were estimated
• Detailed explanations for the more substantial costs

You can find grant writing examples on Instrumentl’s blog and explore ways to enrich your budget narrative within our grant writing FAQ.

Line Items in Your Budget Narrative:

Each area of the budget narrative should also break down the costs of the line items, showing the calculations and how specific numbers were arrived at. Budget narratives provide justification as well as illustrate the rationale behind the spending.

Major Costs & Explanations

• Personnel/staff, any travel conducted, equipment bought or rented, supplies

Salaries and Wages

• List all personnel and their positions, indicate who will be paid with project funds and briefly describe their contribution to the project
• Only list the paid personnel that relate to the project in the grant application
• Explanations for consultants or contractors hired
  - Clearly identify who is being subcontracted
  - Explain the scope of their work
  - Explain why you needed to contract a particular person’s expertise or a contracted organization/consultancy

Equipment

• Definition of the equipment
• Accurate pricing or quotes (if renting or buying)
• Affirm that the equipment is dedicated to the project - indicate if the equipment will be shared with other projects

Materials and Supplies

• Only include supplies that are directly relevant to your project
• Explain how the supplies are needed and how they will be used
• The budget should be based on quotes or known costs

Travel

• Ask for reasonable amount for travel
• Indicate the basis of the costs (prices from experience, quotes, etc.) and make sure to use an inflation factor when planning future travel
• Explicitly state why the travel is relevant and if there are meetings or conferences that are planned
• Include a breakdown of costs of airfare, food, hotels, and any car rentals
• Include how many people are traveling, for how long, and the purpose of the travel destination
  

Simply put, direct costs relate specifically to the project and its budget. Indirect costs are typically the general expenses related to conducting business that may not necessarily directly relate to a specific project within the proposal. Here are some examples of each:

Direct Costs

• Direct labor needed for the project
• Direct materials required for the project
• Manufacturing supplies or equipment necessary for the project
  

Indirect Costs

• General operating expenses
• Business or office rent
• Related business or office bills such as utilities
• Office supplies or other office expenses

• Be specific and concise: elaborate on the larger expenses and justifications. Offer detail where it is needed; there is no need to be extremely verbose over smaller expenses (e.g. pens).
• Illustrate spending and cite calculations: show your math for both justifications of costs and accuracy.  
• Have realistic cost expectations: look at past receipts of how much things cost, collect quotes and invoices, and make sure to consider inflation when making your estimates and calculations.

Now, how does one craft a persuasive budget narrative?

Offer the grant funders a realistic budget explanation that is based on reasonable assumptions about the resources needed for the project and demonstrates that the project is feasible. It should also be accurate and show what will likely happen if sponsors approve the budget request.

Common strengths of a good budget narrative:

• Follows the same order as your budget, listing major costs and their explanations, salaries and wages, equipment, materials and supplies, and any travel conducted
• Gives additional details to explain all costs included in the budget
• Is easy to read and follow
• Is concise
• The numbers match the numbers within the budget
• Only includes budgeted items

In case you'd like to learn about not only grant budget narratives but other grant writing skills, you may find our collection of grant writing classes valuable here.

If the budget explanation fails to be realistic or accurate, sponsors have no basis for approving or rejecting the budget request.

When a budget is too vague, sponsors have no idea of how much is allocated to specific categories, so they have no basis for deciding whether to approve or eliminate the request. They also have no basis for deciding whether or not to accept an increase in the budget or grant application.

Common mistakes of a bad budget narrative:

• It lacks specificity, such as listing a budget line item without any description as to what it is for, what it would be used for, and how that amount was calculated
• The math for costs calculated is not shown
• There is no justification provided for the budget line items
• Is difficult to read and out of order from your budget
• The numbers do not match the numbers in the budget
• It focuses too much on smaller costs rather than allocating appropriate explanations for bigger expenses.

A budget narrative should outline all of the estimated costs for a project and should provide rationale for the allocation of those costs. The narrative should include a well-written justification that will also help establish credibility and increase the chance of a successful grant application. It must also be clear what the results of the project will be and how it is relevant to supporting the organization’s mission.

Now that we have covered what a budget narrative is, you should have an understanding of how to craft your own budget justification. It should be concise yet detailed, address the stipulations of the grantee’s application process, and cover all expenses related to the proposed budget.

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