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The reality is funding your operations must come from somewhere. Finding and securing your organization’s funding, while being mindful of the alignment and compatibility of the funding type and source, should be among your planning considerations.
In this article, we bring some highlights into the complex world of grant funding.
When you’re in the midst of running an organization, be it a for-profit or non-profit, the topic of financial resources remain top of mind. Not surprisingly, the world of finance has dedicated a host of financial ratios to assist in understanding and tracking the use and health of financial resources. Such financial ratios include[i]:
Current Ratio: Estimates the ability of the organization to pay short-term obligations (debts and liabilities) using assets. A ratio greater than one is desired.
= Current Assets / Current Liabilities
Quick Ratio: Similar to the Current Ratio, the Quick Ratio only takes into account assets considered to be immediately liquid. A ratio greater than one is desired.
= (Current Assets – Inventory – Prepaid Expenses) / Current Liabilities
Debt-to-Total Assets Ratio: Assists in understanding how much of the organization’s assets are funded through debt. A ratio of less than one is desired.
= Total Debt/Total Assets
(Note: “Current assets include cash and cash equivalents, accounts receivable, inventory, and various prepaid expenses.”[ii]
So, why highlight organizational assets? Because organizations are dependent upon assets in order to continue operations. There are only a handful of ways to impact the aforementioned measures; either by decreasing liabilities/debt or increasing assets. One such way to secure additional assets is to fund your organization through grants.
“Grant means an award of financial assistance that, consistent with 31 U.S.C. 6304, is used to enter into a relationship –
(a) The principal purpose of which is to transfer a thing of value to the recipient to carry out a public purpose of support or stimulation authorized by a law of the United States, rather than to acquire property or services for the Federal Governments direct benefit or use; and
(b) In which substantial involvement is not expected between the Federal agency and the recipient when carrying out the activity contemplated by the award.” [iii]
Grants provide funds for a multitude of services across many sectors. The distinguishing characteristic of grant funding is that they typically do not need to be repaid if all terms and conditions are followed. Grants can be in amounts as small as $1,000 up to millions.
Types of Organizations Eligible for Grants
There are grants for research, social initiatives, education, more research, and the promotion/support of political initiatives. Organizations that are eligible to be considered for grants include:
Non-Profits and Not-For-Profits: The terms “Non-Profit” and “Not-For-Profit” are commonly used interchangeably. But there are differences, for those who care to use the correct term. Such differences are conveniently detailed here: https://givebutter.com/blog/non-profit-vs-not-for-profit .
These organizations do not focus on profitability and are often evaluated by how much of their funds reach the intended beneficiaries compared to their administrative costs. Resources like Guidestar (https://www.guidestar.org/), which pulls information from a number of places - including IRS filings - provides insights into the use of funds by non-profit organizations.
Government Agencies: This can include all levels of government – Federal, State, County, City/Township, Municipality, etc. The Federal Government is kind enough to provide their own definition of Non-Federal agencies in the Code of Federal Regulations, which are referred to as a “non-federal entity”.
“Non-Federal entity means a State, local government, Indian Tribe, institution of higher education (IHE), for-profit entity, or nonprofit organization that carries out a Federal award as a recipient or subrecipient.”[iv]
(Note: “non-federal agency” also includes for-profits and non-profit organizations…do not get too hung up on this, they are simply identifying who is not a Federal agency.)
Why does this distinction matter? Because non-federal entities, such as States, are commonly tasked with facilitating a sub-award and monitoring funds distributed to other organizations.
For-Profits: These are organizations that pursue profitability in providing services and products to consumers.
Identifying available grants and creating a repeatable process to apply for, and monitor the status of, grants can be challenging. Some resources, in no particular order, for locating available grants are:
https://grants.gov/ The official site for grants issued by the US Federal government.
https://www.grantwatch.com/ Covers a wide range of grants, including those issued by private organizations and non-profit organizations. (Requires a subscription.)
There are also state-specific resources available, such as these in Colorado:
https://guide.crcamerica.org/ (Requires a subscription),
Professional grant writers can apply for grants on behalf of your organization. But, this service comes with a cost, which can vary depending on the size and complexity of the grant, and the array of support requested. When engaging such services, carefully review contractual agreements, ask questions, and consult with a legal professional if necessary.
Misconceptions to be Mindful of
There are few misconceptions that organizations who incorporate grant funds into their asset resources should be aware of. Some common misconceptions of grants include:
“Grants are Free Money”
While it’s true that grants do not require repayment like loans do, there are obligations and costs associated in the form of resources expended to meet the grant’s terms and conditions. This includes time spent by staff on management and accounting of funds, following procedures for spending funds, collecting and reporting data, requesting reimbursement, and managing liabilities/receivables. Furthermore, if the organization is not able to adequately meet the terms and conditions of the grant, the awarding agency could require the funds be returned – either in part or in full, which could create a hardship for the organization.
“Grants are Easy to Manage”
As noted above, there are significant resources required to manage grant funds. This can include reporting requirements, financial controls, a scope of work that must be followed, complying with allowable/allocable/reasonable expenses and reimbursements, intellectual property rights, and publicity/acknowledgement.
“Grants are Easy to Obtain”
The ease of obtaining grants varies widely. Additionally, in the case of government grants, legislation that authorized the availability of grant funds may contain “unique” features, requirements, and critical definitions related to allowability, allocability, and reasonableness. Careful assessment of these details is crucial for improving your chances of approval. Additionally, those same unique features contribute to the next misconception…
“Once you get a Grant, You Don’t Have to do Anything Else”
Receiving grant funds requires a lot of work to demonstrate the organization’s adherence to the terms and conditions of the award. Start by reviewing all agreements – typically those that require a signature – to understand what is being required from the organization. Establish a mindset that grant funds are conditional and it is the responsibility of the organization to demonstrate that those conditions have been fulfilled.
Concluding Thoughts and Final Takeaways
Grants can be a sustainable and efficient way to add funds to your organization’s assets. Grants are available for various types of organizations and having a strategy to incorporate grants into your funding plan is essential. With careful planning and management, grants can significantly support your organization’s mission and growth.
Here are some starting points to consider:
Read and understand the terms, conditions, and requirements of the grant
Have policies and procedures in place for managing grant funds
Understand what regulations are applicable to the grant and incorporate those into your policies/procedures
Track in-flows and out-flows of grant funds through an accounting/bookkeeping system
Know what data needs to be tracked and understand how to secure the data – both in obtaining it and keeping it safe
Understand what your annual audit and filing requirements are
Prepare for your use of grant funds to be audited; it may occur at any time
[ii] https://www.investopedia.com/terms/a/asset.asp#:~:text=Current%20assets%20include%20cash%20and,of%20inventory%20and%20accounts%20receivable.
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