Note from Diane:
You know how passionate our team is about thinking about your grant management work (your post-award work) to help strengthen your grant applications (your pre-award) work. It’s why we partner with MyFedTrainer.com to deliver grant writing supports and training on both the pre-award and post-award side of things. That’s why we’re thrilled to bring these tactical tips to you from Jitasa to help broaden your understanding of grant management.
In the for-profit world, discussing money is like breathing. That’s because the objective of the organization is to earn a profit. However, in the nonprofit world, talking about money can be a little more uncomfortable. Everything is put into the perspective of the nonprofit’s mission rather than the best way to churn a profit.
But that shouldn’t discount the importance of funding in the nonprofit world! After all, earning money through fundraising is how nonprofits are able to pursue their mission and implement programming to help them achieve it. Therefore, it’s important to understand how money is earned in the nonprofit world and managed appropriately.
One of the key revenue sources for nonprofits comes from grants.
Grant contributions provided by governing entities, foundations, or companies provide substantial funding for nonprofit organizations to fund specific programs or areas of their mission. But keeping track of grants can become quickly complicated the deeper into the grantmaking world that you dive—specifically for your financial team.
In this guide, we’ll cover some of the key ways that your nonprofit’s grants impact your finance team. Grants require your finance team to:
- Prioritize and finalize program budgeting.
- Organize funding for specific programs.
- Track restricted grant monies.
- Report on grant usage.
Essentially, grant funds are incredibly valuable for nonprofits, but managing your grants appropriately can be a challenge for any organization. Let’s dive in to learn more about what this looks like.
1. Prioritize and finalize program budgeting.
When you apply for grants, you’ll likely need to write a proposal that covers what the grant will fund and how it will support your mission, making an impact on the community. As your team reviews prospective grants to help fund your nonprofit, prioritize the programs that are most important for your cause and the ones that you require the most funding for.
For example, consider a nonprofit with three major programs, Program A, Program B, and Program C. If they’ve already received a major gift that will fund Program A by 50%, they won’t need to apply for a grant that covers 70% of that program. Instead, they might be better off writing grant proposals that will help cover Program B and Program C.
As you apply for grants, you’ll need to consider three things:
- Your current programming.
- The current funding (specifically restricted funding) you have for each program.
- The grants that will best fit your current needs.
Taking this strategic approach will ensure you don’t have one program with more funding than necessary while another is lacking for the year. Jitasa’s budgeting guide explains that a nonprofit budget should define each of the activities for which money is allocated. Therefore, it’s important to define these before you set the budget and even apply for the grant.
2. Organize funding for specific programs.
Before your organization applies for a grant, your finance team and your executive team must collaborate to determine the funding necessary to support the organization’s overall strategic plan. Then, after you’ve won a grant, the funding you’ve earned needs to be incorporated into your organization’s budget and allocated to the appropriate program.
Let’s say an organization knows they need to allocate $10,000 to Program A, $12,000 to Program B, and $15,000 to Program C. The organization also receives three grants: one grant that will reimburse $5,000 for Program A, a second grant for $9,000 that must be used for Program B, and one unrestricted grant for $6,000.
All of this information can be challenging to keep straight!
Before the organization knows what grants have been won, they would first need to allocate a total of $37,000 of their unrestricted budget to their programs according to each program’s needs. Pretty simple right!
After they know what grants have been won, the organization would then need to adjust their financial allocations for programs to look something more like this:
- $5,000 in restricted grant monies allocated to Program A, which leaves $5,000 to be covered by unrestricted assets. However, the organization needs to have the full $10,000 upfront as the $5,000 in grants will be reimbursed by the grantmaker down the line.
- $9,000 in restricted grant monies allocated to Program B, which leaves $3,000 to be covered by unrestricted assets.
- $6,000 in unrestricted grant monies that the organization decides to allocate to Program C, leaving $9,000 to be covered by unrestricted assets.
Grant monies can be incredibly helpful in helping support your nonprofit’s strategic plan! Aly Sterling’s strategic plan guide emphasizes the importance of aligning with various members of your team (including staff members and board members) to be sure everyone is on the same page regarding your strategic plan.
We’d like to add that it’s particularly important to inform your financial team about this plan as well! Be sure they know where your organization is headed and your priorities, so they can ensure monies are also allocated accordingly.
3. Track restricted grant monies.
In order to remain compliant with nonprofit accounting requirements and the GAAP (generally accepted accounting principles), your nonprofit must record each grant you receive differently depending on the type of grant that it is. There are three primary types of grant payments you may run into and need to record. These types of grant payments include:
- Unconditional grants. While rare, these unrestricted grants do exist! They’re most often provided by the government and are able to be used for the aspects of your budget that have the greatest need. You get to decide where it will be best used. When you receive these grants, they should be recorded immediately when the grant is awarded.
- Grants with contingencies. Grants with contingencies can be recorded in your financial records at the time of each installment. This ensures that you’re meeting the contingencies and can anticipate the installment. For example, let’s say a school is promised two installments of $10,000 if they’re able to show they have 25 students enrolled in their new art program. The school would record the monies as the installments are contributed.
- Reimbursable grants. Reimbursable grants are those where you pay for the expense upfront, but the grantmaker reimburses those expenses after they’re spent. Because you need to pay for these expenses upfront, they still need to be accounted for in your budget. Therefore, only record these grant monies after they’re received.
Remembering to record your grant monies at the right time is only part of the equation. You also need to make sure you’re accurately recording associated restrictions with the grants.
As we mentioned, unrestricted grant monies are out there! They’re highly sought after in the nonprofit world. However, more often, we see grant monies restricted by the funders. This means you need to record these with your other restricted funds (usually major gifts, sponsorships, etc.) and only use them for the specific purpose for which they were intended.
4. Report on grant usage.
One of the troublesome things about grants is that different each grant generally requires different reporting standards back to the funding organization. Especially for those grants that require you to meet specific contingency requirements, you’ll need to report on both the monies and the contingencies.
If your organization applies for and wins several grants throughout the year, it can be challenging to keep track of when to apply for each grant and which grant requires what reporting standards. That’s why it’s important to put together a grant calendar to keep all of this information straight.
Examine the type of information your grant funders require from your organization, then be sure that’s included in your calendar of follow-ups to ensure you meet each funder’s requirements.
Then, put systems in place to accurately track how the grant monies are spent so that you can explain to grantmakers how you’ve used their funds and made an impact on your mission.
If you can report on your grants correctly, you will be able to apply for and win more grants in the future, making it easier to secure additional funding for your nonprofit. This is because you’re building trust with funders and building a reputation for effectively using and reporting on grants.
Grants are an essential part of your nonprofit’s budget. However, due to the additional complexities of nonprofit accounting and the necessity to answer to your funders, there is a lot of detailed financial information you need to keep up with.
Take the necessary steps to ensure your nonprofit finances effectively cover the financial needs of your organization in regard to grants. Additionally, talk to your financial team about how to set up systems that will help you manage these monies on an ongoing basis.
Article written by:
Jon Osterburg has spent the last nine years helping more than 100 nonprofits around the world with their finances as a leader at Jitasa, an accounting firm that offers bookkeeping and accounting services to not for profit organizations.