Thinking through your grant budget

Your budget is the financial backbone to your project narrative for any grant. It needs to stand up to scrutiny from the awarding agency, while giving you enough leeway to cover unexpected costs. Navigating this uncertainty often leads to climate entrepreneurs asking for too much or too little.

To learn how to write an accurate budget, we sat down with Emelie Lucas. Emelie is the Vice President of Grants for Climate Finance Solutions, and has managed over 800 grant applications over the course of her career. 

This is the fifth in a series of pieces we're publishing together with Climate Finance Solutions to provide tactical guidance to climate entrepreneurs around winning and managing grants.

Start with the big picture

First, ask yourself what you need the funding for - this question is harder to answer than it might seem at first. Think of your desired outcome - this will depend on whether the solicitation is for research and development, demonstration to deployment, or something else - and work backwards from there, digging into the nitty gritty details of your project. 

For instance, if you’re doing demonstration to deployment, you might need a larger manufacturing facility. To figure out what that looks like in the budget, you’ll need to decide whether you’re going to rent a facility or build one. If it’s the latter, will you bring contractors in to help you, or build it yourself? Continue in this vein with everything you’ll need for the project, looking at what you can do in-house, and what you’ll need to pay partners to do.

While you’re building a big picture understanding of the financial flows of the project, you’ll also need to check the solicitation requirements, because there might be restrictions that mean you have to cover some of your needs yourself. For instance, some allow you to buy equipment, while others don’t; and some will cap the effort of your personnel, so you’ll need to consider bringing in matches. 

Accounting for the unexpected

There’s a good chance you’ll end up needing more personnel than you’d anticipated - so consider adding more at the outset to give yourself a decent buffer. If your initial predictions end up being accurate, some agencies will allow a budget variance between categories, which means you’d be able to move 25%, depending on the agency, of your personnel budget category into supplies without needing to seek approval first. Learn what the agency allows so you have a clear picture of what your options are down the road. If there’s not a lot of flexibility, think about building in more buffers across all spend areas - expect everything to take longer and cost more than planned.

Keep in mind that some categories are more rigid - if you're going to switch your subcontractors, you’ll need to seek prior approval from the agency, so make sure your partners are totally committed to the project. However, some agencies will let you put down your subcontractors as TBD - do your homework first so you’re fully up to speed. 

Match contributions

Match funding requirements are a means for the awarding agency to see how much skin you actually have in the game. There are two types of match: cash and in-kind. Cash is the most common, and can either come from your business’s balance sheet, revenue, or additional grants from non-federal third parties. With some solicitations, you can’t use other forms of philanthropic funding as a form of match, but some will allow it - you’ll need to check with all parties. 

An in-kind match is a non-financial contribution from your business, for example labor or using existing equipment for the project. The most straightforward form of in-kind match you can offer is personnel effort, as it’s easy to track and report on, and people will probably be working on the project regardless. This will be linked to the salary actually paid - so if an employee commits 50% in-kind effort towards a one-year project and their base salary is $100,000, you will be able to contribute $50,000 as an in-kind match to the project. Some of the benefits, taxes, and other costs associated with an employee may also be eligible for in-kind match - if the fringe rate you've calculated is 15%, for instance, that 15% can be added to the 50% of effort from the employee to constitute your match, if the funding agency allows it. Most solicitation will define what is allowable and unallowable for matches in the appendix of the solicitation.

Indirect costs

Indirect costs - also known as overhead costs or facility and administrative costs - refer to any expenses that can't be directly associated with the project, such as rent, electricity, water, internet usage, and administrative staff. All of these expenses are pooled together into one pot.

When you receive a federal award, negotiating your indirect cost rate with the agency is a common step, but a cumbersome one. This negotiation is important because it could result in an advantageous indirect cost rate, potentially up to 50%. This means you can bill a significant portion of indirect costs to the project without the usual ongoing reporting hassles. Typically the negotiating process requires an in-depth analysis of your existing utilities usage, rent, and administrative expenses.  Each one has to be justified. Keep in mind that meeting the upfront requirements to justify these indirect costs may be significant.

If you’re unsure you’ll be able to justify your existing indirects or need to expedite the process, there's an alternative option: the federal de minimis rate of 10%. This is a flat rate applicable across all federal agencies, and the best part is, you can acquire it without having to justify your costs. It offers a simpler route for those who prefer a straightforward approach. Typically indirect costs will follow your direct costs. To put into perspective how much you’ll gain based on this rate, you can apply your indirect rate to the specified direct cost base. The direct cost base you use may vary depending on agency requirements. The most common is Modified Total Direct Costs (MTDC). MTDC excludes capital expenditures, equipment, rental costs, charges for patient care, scholarships and fellowships, tuition remission, participant support costs, and the portion of each subaward in excess of their first $25,000.

Common pitfalls when budgeting 

1. Not asking for enough 

Many grant applicants miscalculate the number of personnel they need - take a hard look at your staff and ask whether you have the manpower to carry out the work you’re planning to do. If you’re going to be managing several subcontractors, consider hiring a project manager. If you’re going to have extensive reporting requirements, consider hiring a grant manager.

Entrepreneurs also often don’t ask for enough money for expenses like writing publications and going to conferences. These efforts are key to socializing your work and expanding impact, so make sure to think carefully about the resources required up front. Agencies look for activities that will disseminate your findings to the rest of the community. The idea being that the funding provided will enhance and progress the community forward.

2. Misclassifying your relationships

Founders often confuse consultants and subcontractors, which can waste a lot of time. A consultant is brought on briefly to provide a specific type of service for a particular part of the project. They aren’t a main character in this story - you’ll just hire them to check a box.

Taking on a subcontractor is a totally different process - they’re completely involved and need to be verified by the government, so there’s a substantial amount of documentation that will be needed from them.

3. Don’t offer a match if you don’t have to

If there isn't a match requirement, don’t provide one. Including a voluntary match doesn’t give you a leg up; it just makes reporting that much more difficult because you now have committed funds to track. The only time a voluntary match would be beneficial is if your potential project doesn’t seem feasible with the existing budget allowed by the agency. In that case, you can include a match to make the project aims appear financially feasible. However, be mindful that some agencies prohibit any kind of matching.

Emelie Lucas is the Vice President of Grants for Climate Finance Solutions. Emelie is a Certified Research Administrator (CRA) holding a Master's of Science in Research Administration and Compliance from City University of New York, boasts an impressive track record. With over a decade of expertise in grant management within the realm of public higher education, she has adeptly overseen more than 800 grant submissions, successfully securing a remarkable total of over $1 billion in funding from federal, foundation, and industry sources. Ms. Lucas's proficiency spans pre- and post-award grant processes, positioning her as a valuable asset in the grants domain.