Grants are a basic part of any nonprofit organization’s funding. The urge to accept all grant dollars can be strong, but are some more trouble than they’re worth? Grants with excessive administrative burdens and cost inefficiencies can mean lost opportunities for your nonprofit. It pays over the long term to scrutinize grants before you accept them. Here’s what you should consider.
Adding administrative burdens
Smaller or newer nonprofits are at particular risk of unexpected consequences when they accept grants. But larger and growing organizations also need to be careful. As organizations expand, they usually enjoy more opportunities to widen the scope of their programming. This can open the door to more grants, including some that are outside the organization’s expertise and experience.
Even small grants can bring sizable administrative burdens — for example, potential reporting requirements. You might not have staff with the requisite experience, or you may lack the processes and controls to collect the necessary data.
Grants that go outside your organization’s original mission can pose problems, too. For instance, they might cause you to face IRS scrutiny regarding your exempt status.
Comparing costs to benefits
Costs play an important role in grant acceptance. Your nonprofit might incur expenses to complete a program that may not be allowable or reimbursable under the prospective grant. As part of your initial research, calculate all possible costs against the grant amount to estimate its actual financial impact on your organization.
Also analyze the “opportunity cost” of the decision. For unreimbursed costs associated with the prospective grant, consider how else your organization might spend that money. Could you get more mission-related bang for your buck if you spent funds on an existing program, rather than a new one?
Think about how the prospective grant will affect staffing, too. Do you have enough employees to handle the workload or will you need to hire additional staff?
Forecasting the likely benefit of a new grant can be equally — or more — challenging than identifying its costs. Assess each of your nonprofit’s programs in light of the prospective grant to help project its ultimate impact on your organization’s mission. Doing so should answer critical questions about whether to accept it.
Keeping your eyes open
It’s important to not blindly accept government or foundation grants simply because they’re offered. Contact your Hood & Strong team if your nonprofit is trying to grow revenue and needs fresh ideas. We're here to help.
