SEE ALSO>>> Nonprofit Organizations
Grants — whether from a government agency or a private foundation — are among the most important funding sources for many nonprofits. It’s easy to understand why so many organizations are quick to accept every new grant that comes their way. However, that eagerness can backfire in costly and time-consuming ways.
By its very nature, the nonprofit industry has long been “resource-challenged.” Under such ongoing financial pressures, you can’t afford to blithely pass up offers of support. Yet you also should avoid blindly accepting grants; doing so could leave you shouldering excessive administrative burdens, cost inefficiencies and lost opportunities.
Smaller or newer nonprofits aren’t the only ones at risk of such unexpected consequences. You might think that larger, more mature organizations would have formal grant evaluation processes in place. But that’s not always the case.
Further, as an organization grows, it has significantly more opportunities to expand the scope of its programming. This expansion can open the door to more grants, including some that are outside of the organization’s current expertise and experience. The organization could end up accepting a grant with requirements to fulfill and struggles it didn’t anticipate.
Nonprofits often find it difficult to quantify all the costs and benefits associated with a potential grant. At the very least, though, you should consider the following before accepting any new funding:
Administrative requirements. A small grant can bring a sizable administrative burden. For example, you could be caught off guard by the reporting requirements that come with a grant as small as $5,000. You might not have staff with the requisite reporting experience, or you may lack the processes and controls to collect the necessary data. Often government funds passed through to your nonprofit still carry the requirements that are associated with the original funding, which can be quite extensive.
Grants that go outside of an organization’s original mission can pose problems, too. Not only might the grant not consider your learning curve and additional costs, but you might also face an IRS challenge to retaining your exempt status.
Cost inefficiencies. A grant can create unforeseen inefficiencies that undermine its face value. New grants from either federal or foundation sources may have explicit administrative requirements your organization must satisfy.
Additionally, your nonprofit might run up expenses to complete the program that aren’t allowable or reimbursable under the grant. You must net all these costs against the original grant amount to determine its benefit to you.
Lost opportunities. For any unreimbursed costs associated with new grants, consider how else your organization could spend that money (and staff resources). Could you get more mission-related bang for your buck if you spent it on existing programs?
Quantifying the benefit of a new grant or program can be equally (or more) challenging than identifying its costs. You should evaluate every program to quantify its impact on your mission. This will allow you to answer the critical question when evaluating a potential grant: Are there existing programs that can be expanded using the same funds to yield a greater benefit to your mission?
Look before you leap
Grants from the government or a foundation can help a nonprofit expand its reach and improve its effectiveness in both the short and long term. They also can hamstring organizations in unexpected ways. Do your homework before you sign on the dotted line.