Most not-for-profits can’t afford to turn down offers of financial support. At the same time, you shouldn’t blindly accept government or foundation grants simply because they’re offered. Some grants may come with excessive administrative burdens, cost inefficiencies and lost opportunities. Here’s how to evaluate them.
Administrative and other 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 example, they might cause you to face IRS scrutiny regarding your exempt status.
Costs vs. benefits
As for costs, your nonprofit might incur expenses to complete a program that may not be allowable or reimbursable under the grant. As part of your initial grant research, be sure to calculate all possible costs against the original grant amount to determine its ultimate benefit to your organization.
Then, if you decide to go ahead with the grant, analyze any lost opportunity considerations. For unreimbursed costs associated with new grants, consider how else your organization could spend that money. Also think about how the grant affects staffing. Do you have staff resources in place or will you need to hire additional staff? Could you get more mission-related bang for your buck if you spent funds on an existing program as opposed to a new program?
Quantifying the benefit of a new grant or program can be equally (or more) challenging than identifying its costs. Assess each program to determine its impact on your organization’s mission. This will allow you to answer critical questions when evaluating a potential grant.
The long-run
If your organization has lost grants during the COVID-19 pandemic, you’re probably tempted to welcome any new funds with open arms. But in the long-run, it pays to scrutinize grants before you accept them. Contact us if your nonprofit is trying to grow revenue and needs fresh ideas.
This material has been prepared for informational purposes only, and is not intended to provide, nor should it be relied upon for, legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, please consult with your professional legal or tax advisor.
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