Glossary
Financial Reporting

Budget Narrative

By: Alec Hollingsworth
Updated:  
June 16, 2025

DEFINITION:

A budget narrative is a written explanation that details and justifies each component of a proposed budget.
A budget narrative is a detailed explanation accompanying an organization’s budget, clarifying how financial resources will be allocated and justifying each line item. It provides context for the numbers in a budget, explaining the purpose, necessity, and calculation methods for projected expenses and revenues. Budget narratives are commonly used in nonprofit grant applications, internal planning, and financial reporting to ensure transparency and accountability. By connecting financial data with programmatic goals and organizational needs, a budget narrative helps stakeholders, funders, and auditors understand the rationale behind financial decisions and facilitates informed review and approval processes.

Key Takeaways

  • Explains and justifies each budget line item
  • Vital for grant applications and reporting
  • Supports transparency and accountability
  • Connects financial data to organizational goals

Why It Matters

A budget narrative enhances transparency, builds trust with funders, and supports compliance during audits or grant reviews.

Real World Example

A nonprofit applying for a grant to fund an after-school program submits a budget showing $10,000 for supplies, $25,000 for staff salaries, and $5,000 for transportation. The budget narrative explains that supplies include educational materials and snacks for 100 students, staff salaries cover two certified instructors for the school year, and transportation costs are for a contracted bus service. By detailing how each amount was calculated and how it supports program goals, the narrative reassures funders of the program’s feasibility and financial responsibility.

How Aplos Helps

Aplos makes it easy to create, track, and manage nonprofit budgets. When you generate financial reports in Aplos, you can also attach or reference a budget narrative to provide additional context for your financial figures. This helps grant writers, board members, and external reviewers understand the purpose behind each budgeted amount, ensuring clear communication and better decision-making.
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Frequently Asked Questions

What is the primary purpose of a budget narrative?

The primary purpose of a budget narrative is to explain and justify each line item in a budget, ensuring stakeholders understand how and why funds will be spent.

Is a budget narrative required for all grant applications?

While not mandatory for every grant, most funders require a budget narrative to assess the reasonableness and necessity of requested funds.

How detailed should a budget narrative be?

A budget narrative should clearly explain the basis for each cost, including calculations, assumptions, and how each expense supports program goals.

Can I create a budget narrative in Aplos?

While Aplos focuses on budgeting and reporting, you can supplement your reports with a budget narrative for added clarity and context.