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Is grant-based funding a good financial strategy for your nonprofit? How to tell

Jul 15, 2020

The federal government distributed around $721 billion in grants in 2019 to nonprofit organizations to solve public needs, like kindergarten readiness or covering utility funds for lower-income citizens.

But there’s no such thing as “free money.” Accepting and applying for grants requires a lot of work, and organizations must manage the funds meticulously. Missteps could put the organization at risk of audit, funding loss or grant repayment.

If you’re considering adding federal or nonfederal grants to your budget, keep these best practices in mind:

  • Start with an assessment: A community needs assessment is an important tool to help you secure grant funding or measure the results of grant-funded programs. An independent analysis will give you a snapshot of what’s occurring in the community, which you can use to build programs, set budgets or apply for funding.
  • Remember your mission: If you’re approached about a grant or you find one online, consider whether it matches your mission. In order to be a good fit, the grant’s purpose must fit with your strategic goals and plans for the organization.
  • Confirm the funding source: Make sure you understand where the money is coming from because it impacts some of the regulations and guidance. Federal grants typically have very detailed terms and conditions, while state or private foundation grants may be open to some interpretation.
  • Triple check the requirements: Grant packets can be lengthy, so stay diligent. Make sure you understand the terms of the grant, including reporting requirements, timelines and allowable expenses. Don’t get giddy over a dollar amount and go light on the details – it could cost you. If requirements aren’t met, you could be asked to repay the grant or face other penalties.
  • Weigh the costs and benefits: Think critically about what acceptance means for your organization and whether you have the capacity to fulfill all the requirements. Some grants come with onerous reporting schedules or other conditions that outweigh the benefits. If you accept a grant, you are agreeing to execute all of the terms and conditions that accompany it. The more funding you accept, the more closely your organization may be monitored or audited to ensure the money is being spent as intended.
  • Involve your finance director: The financial reporting and accounting for grants can get pretty complex. Make sure you have systems in place and the capacity to track and allocate expenses in accordance with the terms and conditions of the grant. Grant accounting has nuances that aren’t taught in college accounting courses; it’s mostly learned on the job. If your team doesn’t have experience in grant accounting, make sure you have resources or peers to learn from.
  • Budget carefully: Grant money is fairly stable, which makes it an attractive funding strategy for nonprofits. But it usually doesn’t cover all of a program’s expenses. Based on the terms of the grant, you may need to cover some costs, like administrative expenses or salaries, from another funding source. And grant amounts typically stay flat instead of adjusting for inflation or other price increases. You’ll need a plan to fill the gaps if expenses start to exceed the granted amount.
  • Get support: Most grants are assigned a grant manager or fiscal representative at the granting organization who can help you navigate the requirements of the grant. Reach out to your representative early in the process; a few good conversations can ensure you’re on the same page and planning to administer the funds appropriately. Leaders and fiscal agents at peer nonprofits can also help. If other organizations have run a similar grant before, reach out to see what you can learn.
  • Stay informed: Typically, grant rules and regulations don’t change significantly from year to year. But minor adjustments do occur and sometimes rules aren’t clear cut. Stay current on the guidance and regulations for your grant and maintain a good relationship with the grant management team so you can work together to resolve questions or concerns.

Grants can be a significant source of stable funding for your nonprofit, if you’re prepared to put in some extra work. With careful planning, accounting and monitoring, you can deliver much-needed programming to your community.

Learn more ways to fund your nonprofit’s mission with grants at our National Training Conference. We’ll discuss some of the benefits, challenges and best practices associated with grant-based funding.


Karl A. Eck, CPA
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