Budgeting Nonprofit Income: Grants and Contributions

Anyone who has ever created a budget for a nonprofit organization knows that expenses are easy to plan – but projecting the income section can feel like a dart throwing contest. It would be nice if all the grants and contributions we needed were committed before we had to start preparing our budget, but that’s pretty unrealistic. In actual practice, preparing a budget requires making assumptions – and guesses – about the contributed income we believe we will receive during the year.

Uncertainty
One philosophical question to consider before starting your budget is to agree on how much uncertainty to include in your budget. There is always some uncertainty, but there is a wide range in the amount of uncertainty, or risk, in making assumptions about contributed income. The most conservative approach is to assume only grants and contributions that have already been committed for the year. The most risky approach is to use the contributed income section of the budget as a “plug” number to make the budget balance, and then hope that the funds can be raised during the year.  Most nonprofits use an approach in between these two extremes; what’s important is for everyone involved in creating and approving the budget to understand the assumptions.

Making Assumptions
A prudent method to develop grant and contributions budget is to start with what is known about committed funds and add other amounts in tiers based on whether they are (a) very certain, (b) likely but not certain, (c) possible but unknown, or (d) unknown. Determining which category a potential grant falls into is a judgment call based on our experience with, knowledge of, contacts, and relationships with potential funders, as well as the timing of grant cycles. Include amounts in categories (c) or (d) in the budget only if you have confidence that the grants can be raised. Budgets that include a lot of “unknown” grant funds are very risky. It’s better to plan for a smaller budget than to make unrealistic assumptions for grants and face a crisis later in the year.
Remember also to consider whether grants are for general operating expenses, or restricted for specific programs or projects. Grants sometimes are received that can’t be used during the current year because of the schedule for the program activities. 

Contributions other than grants are budgeted using a similar method. Based on past experience, project the amounts you expect to receive from individual donor campaigns, special events, or fundraisers. Budget for an increased amount of contributions only if there is a realistic plan for how to generate the increase – a plan that includes specific action steps and responsibilities.

There is no one “right” way to budget for grants and contributions. The most important consideration is to understand the assumptions behind the numbers, decide how much uncertainty is acceptable to the organization, and implement an action plan to achieve the budget.

Authored by Kate Barr, Executive Director of the Minnesota Nonprofits Assistance Fund (MNAF), a program of Nonprofits Assistance Fund.   MNAF provides flexible loans and practical financial management training and advice to nonprofits.  Other resources and articles on nonprofit financial management topics can be found on their web site at www.nonprofitsassistancefund.org.  You can contact Kate Barr at 612/278-7180.