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.

 

Every grant your nonprofit secures is a step toward growing its impact. Foundations, companies, and governing entities provide these opportunities to advance specific programs and missions they feel passionately about. However, proper financial oversight is critical to make the most of those vital funds. 

 

Effective grant management goes beyond tracking funds in your CRM—it’s also about budgeting effectively, prioritizing programs that need financial support, and delivering timely reports to grantmakers.

 

To help ensure each grant drives meaningful change, this guide will explore ways grant management influences your nonprofit’s finances and how to optimize the process for greater impact.

 

1. Budgeting

Creating a grant budget that aligns with your nonprofit’s annual budget is essential for maintaining financial stability and ensuring resources are distributed effectively. Many grantmakers request a proposed budget along with grant applications to show you’re thinking about these goals from the start.

 

As your team reviews prospective grants, prioritize programs that are most central to your mission and in need of funding. After determining which grants to pursue, integrate grant planning into your overall budgeting process to ensure alignment between the grant’s specific requirements and your nonprofit’s broader financial goals.

 

Follow these steps to align a grant budget with your annual budget:

 

1. Start with your annual budget. Use your nonprofit’s operating budget as a foundation. Break down your expenses by program or activity to identify how much funding each area requires and how much is already covered by other sources.
2. Focus on funding gaps. Prioritize grants that could address underfunded programs or initiatives while avoiding overfunding areas that are already supported. For example, if Program A is already 70% funded by a major donor, focus on grants that will address funding gaps for Programs B and C.
3. Integrate grant budgets into your annual financial planning. Most grants won’t completely cover the cost of a program, so identify other sources you’ll use to make up the difference, such as event revenue, part of your year-end campaign total, or another grant. Once secured, incorporate grant funds into your financial tracking systems to maintain accountability and alignment with your annual plan.

 

By aligning each grant’s budget with your annual budget, you’ll allow every dollar to work strategically toward achieving your mission. This approach fosters financial stability and the effective use of resources across all programs.

 

2. Funding Restrictions

Before writing grant proposals, your finance and executive teams should collaborate to determine how each grant’s funding requirements align with your nonprofit’s overall strategic plan. Grant funds usually come with restrictions, so understand each funder’s limitations and plan accordingly.

 

There are three categories of nonprofit funding restrictions you should know before incorporating grants into your financial strategy:

 

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:

• • Unrestricted funds don’t have requirements regarding how they can be spent, so your nonprofit can put them toward any area of its budget, from overhead expenses to specific programs. You might come across some unrestricted grants in your efforts, although these opportunities aren’t common. 

• Permanently restricted funds usually take the form of endowments and are invested rather than spent directly. Any generated interest can fund contributor-specified programs or projects.

• Temporarily restricted funds are designated for specific projects or time frames. Once the project is finished or time expires, any unused funds become unrestricted. Most grants fall into this category (along with major gifts and sponsorships). 

 

To ensure you’re pursuing the right grants, assess your funding needs and prioritize opportunities that align with your organization’s goals, timelines, and capacity to meet requirements. Focus on grants that closely match your program priorities and resource needs to streamline planning and ensure compliance with grantmaker restrictions.

An Example of Restrictions in Action

Imagine your organization needs to allocate $10,000 to Program A, $12,000 to Program B, and $15,000 to Program C, totaling $37,000. Your team secures three grants:

 

1. A $5,000 reimbursable grant for Program A.
2. A $9,000 program-specific grant restricted to Program B.
3. A $6,000 unrestricted grant.

 

Upon receiving the award letters, your team would allocate program finances to look something like this: 

 

• Program A: Use the $5,000 reimbursable grant and cover the rest with $5,000 of unrestricted funds. Know that your organization must have the full $10,000 available upfront because the $5,000 grant is reimbursed after expenses are incurred.
• Program B: Apply the $9,000 program-specific grant, reducing unrestricted funds needed to $3,000.
• Program C: Allocate the $6,000 unrestricted grant, leaving $9,000 of other unrestricted funds to meet the total need.

 

Understanding funding restrictions enables your nonprofit to allocate resources strategically and comply with funder expectations. To do this effectively, ensure your staff, board members, and financial team are on the same page with your organization’s strategic plan so that everyone understands your priorities. This alignment helps you allocate funds efficiently and in support of your mission.

 

3. Revenue Recognition

To comply with nonprofit accounting requirements and the Generally Accepted Accounting Principles (GAAP), your nonprofit must record each grant you receive differently depending on the grant type.

 

Jitasa’s nonprofit revenue recognition guide explains the three primary types of grant payments you may need to record as follows:

1. Unconditional grants. While rare, these unrestricted grants do exist! The government often provides them, and you get to decide how to spend these funds. When you’re awarded unconditional grants, immediately record them, even if the funding takes some time to arrive.
2. Grants with contingencies. Also called conditional grants, these are paid out in installments as your organization meets the funder’s conditions. Record these in your financial records when you receive each installment. For example, let’s say a school is promised three monthly installments of $10,000 if they can show they have 25 students enrolled in their new art program. The school would record the funds as the installments are contributed. 
3. Reimbursable grants. These grants require your nonprofit to cover the initiative’s costs upfront and maintain an itemized list of expenses so the funder can reimburse your organization afterward. Record the funds only after receiving them since you won’t know the final grant amount until the funder reviews your list.

 

Recording grants at the right time is only part of the equation. You also need to accurately record the grant type and associated restrictions when you win the funds. If you’re unsure how to categorize or record a grant properly, consult with an accountant to ensure compliance with accounting standards and funder requirements.

 

While unrestricted grants exist, restricted grants are much more common. You’ll need to record any restricted grants you win with your other restricted funds (like major gifts and sponsorships) and only use them for their specific intended purpose. Transparent and consistent financial practices will demonstrate commitment to funder guidelines, helping you to foster trust and encourage future support.

 

4. Reporting

One of the challenges of managing grants is that each grant often comes with unique reporting standards the funding organization sets. Especially for conditional grants, you’ll need to report on both the funds and contingencies. Timely and detailed reporting is essential for maintaining compliance and cultivating relationships with funders.

 

If your nonprofit wins multiple grants throughout the year, keeping track of reporting deadlines and requirements can become overwhelming. This is why it’s important to create a grant calendar that pre-plans each grant’s application deadline, reporting schedule, required documentation, and any contingencies. 

 

Double the Donation’s guide to annual fundraising calendars explains that developing a calendar allows your nonprofit to stay organized, meet deadlines, and strategically manage resources. Your calendar should lay out activities, costs, expected income, deadlines, and other notable events month-by-month. By systematically tracking grant requirements and deadlines as part of your centralized calendar, you won’t overlook critical deadlines.

 

Then, build systems to track grant spending and outcomes in real time, ensuring that you can generate reports for grantmakers when needed. To maintain transparency, you should include this information in your organization’s financial documents, such as budgets, statements of activities, audit reports, and your nonprofit’s annual Form 990.

 

Including grant-related details in official documents not only satisfies regulatory requirements but also demonstrates your organization’s responsible use of funds to potential funders and the public.

 

Grants are an essential part of your nonprofit’s budget. However, they bring additional complexities to nonprofit accounting and reporting since there is a lot of detailed financial information to keep up with.

 

Ensure your nonprofit’s finances are structured to meet its grant-related needs, and work with your financial team to establish systems for managing and reporting these funds to maximize their potential for your mission.

 

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.