When looking at the financial records of a nonprofit organization it is rare to discover that the organization does not have any grant funding. Even the larger nonprofit organization will apply for grant funding to deliver their mission. Grant funding can come in very large amounts and is very tempting for many nonprofits. However, the question that remains is, are large sums of money worth the reporting required?
Government funding is the most tempting form of grant funding for nonprofit organizations for several reasons. The first reason is because of the amount of funding that a government agency will award. Government agencies typically put out RFPs (Request for Proposal) for services that are an expressed need of the people they serve, as well as the difficulty for a government agency to provide this service.
The second reason government funding is so appealing to a nonprofit is that it is typically multi-year funding source. The reason this funding is multi-year typically is because the administrative aspect of creating the RFP and reviewing all of the applications negatively impacts the resources of the agency because of the time involved.
After reviewing an RFP, a nonprofit see that the government contract will ensure half of their budget for three years. They decide to apply for the funding and they receive it. The organization believes that now they are able to provide the necessary resources for their programs. However as the director reads the award letter he notices that there are several pages attached. The pages attached outline the reporting requirement for the grant. The RFP did not clearly state the reporting requirements of the grant. Requirements of government grants can require anything from being responsible for attending a week long conference to being required to hire an additional person to administer the grant.
A lot of times is the stress that the grant reporting forces on the administration of the organization. The reports will often require quarterly or monthly progress reports. At the end of year the organization typically must file a detailed year end report. The requirements can often impact program delivery of an organization. Some grants require specific programs to be delivered with the funding. This type of requirement can cause an organization to drift from their mission.
Financial implications are not the only negative impact of a government grant. What often occurs with nonprofits that receive a substantial portion of their budget in grant funding is that the organization becomes content. The financial burden has been lifted and the board and professional staff can have the tendency to become lazy. This is problematic because government funding or any grant funding is not always stable, especially if the funding is not granted up front.
In the recent economic downturn the funding instability of government agencies has impacted several nonprofit and for profit organizations negatively. With cuts in federal spending many government agencies have been force to pull back their grant awards. If you are part of a nonprofit organization that relied on a large portion of your organizations fund to come from the government grant it could mean that your organization will have to close.
The negative impacts of grants can be avoided to a certain extent. Major requirements of a government contact are typically laid out in the RFP. However there are times that reporting requirements can be vague, leaving organizations with a false sense of security. If you do receive funding, you should never change the way your organization raises funds. Even if a grant is slated to fund you for five years, the grant will still run out in five years. There are not any guarantees that your organization will be able to receive this continued funding. More importantly is the fact that grant awards that are reimbursed or dispensed on a yearly basis can stop at anytime.
Choose wisely the funding streams that you accept at your organization. There isn't a such thing as free money in terms of grants, there are always hidden costs that go along with it. Also to ensure that you do not fall into the trap of government funding being a major source of funding, set fundraising goals. By this I mean understand the percentage of funding you want your organization to have from grant funding. This does not mean that you should not accept grant funding. This means that when you receive a large grant you must work to raise the other revenue streams as well. Doing this will allow your organization to be prepared for the loss of grant funding.
In the recent economic downturn the funding instability of government agencies has impacted several nonprofit and for profit organizations negatively. With cuts in federal spending many government agencies have been force to pull back their grant awards. If you are part of a nonprofit organization that relied on a large portion of your organizations fund to come from the government grant it could mean that your organization will have to close.
The negative impacts of grants can be avoided to a certain extent. Major requirements of a government contact are typically laid out in the RFP. However there are times that reporting requirements can be vague, leaving organizations with a false sense of security. If you do receive funding, you should never change the way your organization raises funds. Even if a grant is slated to fund you for five years, the grant will still run out in five years. There are not any guarantees that your organization will be able to receive this continued funding. More importantly is the fact that grant awards that are reimbursed or dispensed on a yearly basis can stop at anytime.
Choose wisely the funding streams that you accept at your organization. There isn't a such thing as free money in terms of grants, there are always hidden costs that go along with it. Also to ensure that you do not fall into the trap of government funding being a major source of funding, set fundraising goals. By this I mean understand the percentage of funding you want your organization to have from grant funding. This does not mean that you should not accept grant funding. This means that when you receive a large grant you must work to raise the other revenue streams as well. Doing this will allow your organization to be prepared for the loss of grant funding.
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