This is an update to our popular post “Seliger’s Quick Guide to Developing Federal Grant Budgets.” While that post provides a step-by-step description of how to develop a federal grant proposal budget, it assumes that the budget preparer understands the difference between the real world and the proposal world. Experts in real-world budgets are often too sophisticated for the proposal world.
When we’re hired to complete a federal proposal, we send our client an Excel template that models the SF-424 budget form found in all grants.gov WorkSpace applications. Recently, we’ve been working for a series of large nonprofits and public agencies that have skilled Chief Financial Officers (CFOs). Most of these CFOs, however, have little or no understanding of proposal budgeting, as they’re accustomed to detailed operational budgets. Yet they’re often charged with filling out a proposal budget.
Even if we discuss the proposal world with the CFO first, the completed template we receive back is usually way too detailed, because it reflects actual program operations, not the idealized proposal world. This not only makes preparing the associated budget narrative/justification far too complex, but also means the budget presentation won’t display well when saved as the required .pdf for attachment to the kit file. The budget will also confuse proposal reviewers (which is never a good idea while being very easy to do), as most of them are not accountants, CFOs, etc.
So how do you keep your budget anchored in the proposal world?
- Keep the number the number of line items short—around, say, 20. If you use 40 line items, the spreadsheet bloat will be very difficult to format in a way that is readable and meets RFP formatting requirements (unless you’re a wiz at Excel, which almost no one—including us and the CFOs we encounter—is).
- Only include staff and line items that will be charged to the grant (and match, if required).
- Personnel line items must match the staffing plan in the narrative. Resist the urge to load up the budget with small FTEs (2% to 20%) of lots of existing administrators/managers, as this will make your agency look bureaucratic (not a good idea, even if it is) and clog the budget narrative. Large numbers of small FTEs are what a federally approved Indirect Cost Rate is for. If your agency has at least one existing federal grant, get an approved Indirect Cost Rate, which is not that difficult, and many of your proposal budgeting woes will be solved.
- Unless the RFP requires it, don’t line-item fringe benefits. These can usually be lumped together as a the percent of salaries your fringe benefit package equates to. For most nonprofits, this will be in the 18% to 30% range. Anything above 30% will probably generate unwanted attention from grant reviewers, even if that is what you pay. If the fringe benefit rate is relatively high, this should be explained in the budget narrative (e.g. lower salaries, high local costs, need to retain staff, etc.).
- For multi-year budgets, don’t include expected yearly salary increases or annual inflators; this is too detailed and will, again, result in a very complicated budget justification. Inflation in the current environment is low. In a high-inflation environment like the ’70s, this advice would be different.
- Regarding the “Other” Object Cost Category on the SF-424A, it’s unnecessary to break down line items too far. For example, lump together facility costs (e.g., rent, utilities, security, janitorial, maintenance, etc.), or communications (e.g., landline and cell phones, mailings, etc.) into single line items. Try to consolidate.
- If feasible, try to make the total annual budget level for each project year. This can be a bit challenging, if, for example, the project involves start-up costs (e.g., buying staff furniture, hiring a web designer/social media consultant, etc.) in year one. The way to do this is to increase some other line item(s) in the out years to keep the budget level. Level annual budgets will make the budget easier to write and understand.
- Make one line item your plug number to enable reconciliation to the maximum allowed grant and/or level annual amounts in multi-year grants. The plug number should be in the Other Object Cost Category and could be advertising, communications, or similar line items that look OK with an odd number in different years. Reviewers are aware of plug numbers and won’t hold reasonable plug numbers against you.
The proposal budget is just a financial plan that supports the proposed project activities, not a detailed expression of an operational situation. Following the notice of grant award, your agency will have to negotiate the actual budget in the contract anyway.
In most cases, the grantee can move 10% of the total grant among line items by notifying the federal program officer or requesting larger budget changes to reflect operations in the real world as the project is implemented. Unless you ask to swap an Outreach Worker for a lease on a Tesla for the Executive Director, the program officer will likely go along with your plan, as most simply don’t care what you do so long as the grant doesn’t end up in BuzzFeed, Politico, or the New York Times. Program officers want to make sure you are reasonable implementing a proposed project, but they don’t care about relatively small changes in operations-level detail. Fighting over small details in a proposal budget is a foolish thing to do, as is including small line items. Get the big picture right and the details will shake out during implementation.