How to Build a Multi-Year Budget in GrantCraft

Why Multi-Year Budgets Require Special Attention

Many grant programs fund projects over two to five years, and these multi-year grants require budgets that account for changing costs, phased implementation, and evolving resource needs over time. A single-year budget is a snapshot. A multi-year budget is a financial forecast that must be realistic, well-justified, and internally consistent across the entire project period.

Step 5 of the GrantCraft Proposal Builder provides the framework for building your budget, and this guide shows you how to extend that framework across multiple years. Whether you are applying for a three-year federal grant or a five-year foundation commitment, the principles of multi-year budgeting are the same: account for inflation, align costs with your implementation timeline, and justify variations between years.

Structuring the Multi-Year Budget

A multi-year budget presents costs for each year of the project period, typically with a separate column for each year and a total column. The Proposal Builder helps you organize costs by standard categories: personnel, fringe benefits, travel, equipment, supplies, contractual, and indirect costs. For a multi-year budget, you build each category for Year 1 and then project forward, adjusting for anticipated changes.

The budget should be accompanied by a narrative justification that explains the basis for each year's costs and the reasons for any variations between years. A multi-year budget where every category is identical across years suggests the applicant has not thought carefully about how the project will evolve.

Accounting for Inflation and Cost Escalation

The most fundamental multi-year budget adjustment is inflation. Personnel costs should increase each year to reflect salary adjustments, typically 2 to 4 percent annually depending on your organization's policies and the current economic environment. Fringe benefits may increase as well, particularly health insurance premiums, which have historically risen faster than general inflation.

Non-personnel costs also increase over time. Supplies, travel, and contractual services are all subject to price increases. A standard approach is to apply a 3 percent annual inflation factor to non-personnel categories unless you have specific information suggesting a different rate. Document your inflation assumptions in the budget justification so reviewers understand your methodology.

Example: Three-Year Personnel Budget

• Year 1: Program Coordinator, 1.0 FTE at $48,000.
• Year 2: Program Coordinator, 1.0 FTE at $49,440 (3 percent increase).
• Year 3: Program Coordinator, 1.0 FTE at $50,923 (3 percent increase).

This progression shows that you have accounted for standard salary increases and demonstrates financial planning competence.

Phased Implementation and Budget Implications

Most multi-year projects do not operate at full capacity from day one. Year 1 often involves planning, hiring, purchasing equipment, and piloting services. Year 2 typically represents full implementation. Year 3 and beyond may focus on expansion, refinement, and sustainability planning. Your budget should reflect this phased approach.

Common budget differences by year include:

• Year 1: Higher equipment and startup costs, lower participant-related costs because enrollment ramps up gradually, potential one-time costs for curriculum development or training.
• Year 2: Full personnel costs as all positions are filled, full participant enrollment, higher supply costs as the program serves more people.
• Year 3: Reduced equipment costs as major purchases are complete, potential evaluation costs for a summative study, sustainability planning expenses such as fundraising or grant writing for continuation funding.

Handling One-Time Versus Recurring Costs

Multi-year budgets must clearly distinguish between one-time costs and recurring costs. Equipment purchases, website development, curriculum design, and initial training are typically one-time costs that appear in Year 1 only. Salaries, rent, supplies, and ongoing training are recurring costs that appear in every year.

If a major equipment purchase appears in Year 1 but not subsequent years, your total budget for Year 1 may be significantly higher than later years. This is normal and expected, but it should be explained clearly in the justification. Conversely, if Year 3 includes a large evaluation contract that was not present in earlier years, explain why this cost appears at that point in the timeline.

Cost Sharing and Match Across Multiple Years

If the grant requires cost sharing or matching funds, your multi-year budget must show the match for each year. The match must be proportional and consistent with the total project costs. If you commit to a 25 percent match, it should be approximately 25 percent of each year's budget, not all front-loaded in Year 1.

Document the sources of your match clearly. If the match comes from organizational funds, board contributions, in-kind services, or other grants, specify the source and amount for each year. Funders evaluate whether your match commitments are credible and sustainable across the full project period. For more on cost sharing strategies, see our guide on advanced budgeting strategies and cost sharing.

Building the Multi-Year Budget in GrantCraft

Use the Proposal Builder's Step 5 to create your Year 1 budget with detailed line items and justifications. Then create the subsequent years by adjusting for inflation, phased implementation, and one-time versus recurring costs. The builder's structured format ensures consistency across categories, and the justification prompts remind you to explain the basis for each figure.

After building the budget, cross-check it against your project timeline in Step 4. Every activity should have budget support in the year it occurs. If your timeline shows hiring a new position in Month 7 of Year 1, the budget should reflect seven months of salary in Year 1 rather than a full twelve months.

Common Multi-Year Budget Mistakes

• Flat budgets across years: If every year has identical costs, reviewers assume you have not thought about implementation phases or cost changes.
• Forgetting startup costs: Year 1 typically has one-time expenses that subsequent years do not.
• Ignoring inflation: A three-year budget with no salary increases is unrealistic.
• Misaligning budget and timeline: If your timeline shows activities starting mid-year, the budget should reflect partial-year costs.
• Underfunding evaluation: Many projects add significant evaluation activities in the final year. Budget for them.

Review the GrantCraft Tips section for additional budget advice, and use the Readiness Checklist to verify your budget is complete before submission. For comprehensive guidance on federal cost principles that apply to multi-year budgets, see our guide on grant budget fundamentals.

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