When it comes to grants, many nonprofit leaders struggle with how to showcase and fundraise for one or two standout programs (the “stars” of their organization) while still meeting the revenue goals of their organization broadly. We know that foundations often prefer to fund specific programs over providing general operating support, and as a result our grants calendars are filled primarily with prospects and donors who have an interest in a specific program within an organization – and not necessarily the organization as a whole.
Effective foundation fundraising means that leaders are tasked with:
- Finding a way to meet the desires of the funder to make grants towards specific programs while
- Ensuring those program-specific grants help fund their organization’s bottom line
Is it even possible to meet both these goals at the same time? Absolutely.
The key is to take time to think carefully about your budget, both program and organizational. Bringing good systems and practices to bear in your foundation fundraising efforts saves time and promotes long-term success in grants.
The Catch-22 of Fundraising for Your Showcase Program
A typical scenario for a growing nonprofit might be that you have a showcase program with great fundraising potential, but your expenses for that program (the “Program Budget”) account for 30% or less of your organization’s overall operating expenses. It hits you that even if you raise ALL of the revenue your program needs, you still have 70% to go in order to keep your organization afloat for another year.
Is this what success looks like? A fully funded program within a cash-strapped organization that will sink or swim depending on unrestricted funding alone?
Often, the situation becomes even more complicated. A long-time supporter of your amazing program comes to you with a tease: “If I double my gift this year, what kind of investment in this program growth can you make?” No way can you let them know you’re sweating bullets balancing your Organizational (Operating) Budget, and can’t even contemplate growth within your superstar program, because here they are with a blank check looking for growth!
Create an Organizational Budget Suited for Grants
To avoid the nightmare scenario above (yes, even donors wanting to give you more money can be a nightmare under certain circumstances), you must begin with your Organizational Budget. An Organizational Budget – expense side here, not revenue (we’ll come back to that) – should be developed through the following steps:
1. Start with last year’s expenses. Look at your last year’s actual expenses, and go through them line-by-line, noting any changes to anticipated expenses this year. Did you hire more staff? Did your insurance costs go up? Maybe you downsized, or don’t have to buy computers this year like you did last year. Make a separate column off to the right of the Organizational Budget for “notes”, and write in the assumptions behind whatever numbers you chose to budget for this year. (You’ll also note lots of other info – just keep reading!)
2. Be conservative. For expenses, this means assuming things will cost more than you think they will. Even a small worst-case assumption could save your bacon if costs increase unexpectedly mid-year.
3. Note line items that are clearly connected to your programs. For instance, think about your staffing line: some staff are probably administrative only (development team, office manager), while others are responsible (in whole or in part) for one of your programs. Take the time to note the approximate number of hours of staff time dedicated to that direct programmatic work, and note it as a percentage (e.g. .25 full time) allocated to that program.
4. Go back and note those line items that are not clearly connected to your programs, but are still necessary for those programs’ success. Spend some time thinking slowly and critically here: some portion of your payroll and bookkeeping costs – and probably your executive director, rent or mortgage payments, insurance, fringe, etc. – are necessary for your program(s) to function. How you calculate this percentage can vary (it can be based on the program cost as a percentage of all costs, or broken down line by line through careful analysis), but you should absolutely note these “indirect” (but still necessary) costs as belonging at least in part to your program or programs.
How to Build an All-in Program Budget for Grants
If you’re running a program that’s been in existence for a while, you likely already have a Program Budget of some kind. If your program is new or just getting up and running, you may have to do this from scratch. Regardless, the process of developing a new Program Budget for grants and updating an older one is roughly the same:
1. Start with last year’s actuals: Work through the lines, noting your changes and assumptions, and adding new line items as necessary to meet the program’s mission and outcomes.
[IMPORTANT: Look at steps #3 and #4 above towards our Organizational Budget, and make sure all the line items from your Organizational Budget that are even a little bit allocated to your program are included here. Note the percentage allocation, the dollar amount, and the “why” behind that calculation.
2. Determine direct versus indirect costs: Ask yourself which costs you’ve included in your Program Budget are “direct” costs (directly related to the activities in your program’s logic model or modus operandi) and which are “indirect” (supportive of, but not directly responsible for your program’s outcomes). Some people separate these two cost categories in their program, and while we find this is not usually necessary, it is sometimes required, making it a good thing to at least add to your “notes” column for each cost.
3. Consider new expenses: If you’re comparing against last year’s program actuals, ask yourself: have you added new expenses (or percentages of larger organizational expenses) to your Program Budget, expenses that you didn’t expect? If you’ve done this with honesty and in a traceable way (this is why noting your assumptions is important), then congratulations, you now have a robust, updated, LARGER program budget!
Reflecting on Your New, More Expensive Program
You’ve gone through the steps above and your program is suddenly looking a lot more expensive – on paper, at least. But before you panic, remember that these costs already existed in your Organizational Budget. You have just allocated – and justifiably so – a percentage of your organizational expenses toward this program in order to show the TRUE cost of operating that program and meeting its outcomes.
You have, in short, created a more honest budget. This can be a sobering experience for you and your team, but that’s OK, as it also invites an important opportunity. So let’s make a shift now from expenses to revenue.
How to Address Revenue on a Program Budget for Grants
It’s good practice to begin budgeting with expenses rather than revenue, so that you understand the true cost of “doing business”. But with that now done, it’s time to turn to revenue. Start with the least flexible categories – government contracts (if you have them), then foundation grants – and input reasonable assumptions based on known or conservative estimates. Then move on to the more flexible categories – event income, individual unrestricted gifts – where you have more room to set goals and make changes to your strategy throughout the year.
It’s important to remember that for revenue, “conservative” means to assume that LESS will arrive than you hope (versus being “conservative” with expenses, where we assumed that things will cost MORE than we hope).
Across these various revenue line items, you want to adjust your assumptions so that your budget zeroes out; that is, you want to fully fund your program expenses. If you have allocated the line items as we described earlier, you will have also – voilà! – have funded a portion of your organization’s operating costs.
How Your All-in Program Budget Will Accelerate Fundraising Success
Everything you’ve laid out – all your expenses, your revenue projections, your notes – only exists on paper at this stage, but armed with this comprehensive Program Budget, you can now present the FULL and TRUE cost of operating this program to your individual donors, your foundation prospects, and even your government funding partners once it comes time to update those contracts or procurements.
And because many grant proposals don’t require you to specify your proposed use of funds by line item, asking instead only that you restrict funds to a given program, you have more flexibility with the actual line-item use of those funds AND a more compelling budgetary story to tell.
Supporting Your Grant Budgeting Process
If you’re uncomfortable with this process or unsure how to do it correctly, talk with your grant writer or fundraising consultant about your goals and concerns for your Program Budget. And if you aren’t yet working with a grants consultant, talk to us! By working out these issues BEFORE drafting the narrative content of a grant proposal, you will be in a far better position both to win a given grant AND to successfully manage those funds’ contribution to your bottom line.
About Page Consulting Group: Page Consulting Group helps nonprofits secure foundation funding through a proven three-phase process grounded in research, strategy, and execution.