Money Talks: Why Grant Funders Need to Know Your Nonprofit's Financial Story
“So they need my 990, an audited financial statement, a project budget, a funding history, AND a profit and loss statement??’
The amount of financial information requested by potential grantors can often feel overwhelming or perhaps even invasive. It can also feel like a power imbalance, providing detailed information on your organization’s finances is overwhelming and may open an organization to scrutiny or judgment.
There are a lot of forms or policies to unearth and format, dates to check, and numbers to input. So why do grantors ask for all of this information?
1. Building Trust and Credibility:
Grant funders seek partnerships with organizations they can trust. Transparent financial information serves as a cornerstone in establishing credibility. When potential grantees willingly share comprehensive financial details, it signals a commitment to openness and accountability. This trust is the foundation of a strong, collaborative relationship that can be leveraged into future funding
2. Strategic Decision-Making:
Grant funders are strategic investors. They aim to allocate resources for the greatest impact. Access to detailed financial data equips funders with the insights needed to make informed decisions. Understanding an organization's financial health helps funders assess its capacity to execute and steward proposed projects effectively and sustainably.
3. Ensuring Financial Stability:
Grant funders are not only interested in the immediate impact of their support, but also the long-term sustainability of the initiatives they fund. By scrutinizing financial information, funders can evaluate an organization's financial stability, ensuring that it can weather challenges and continue its mission beyond the grant period.
4. Demonstrating Accountability:
Nonprofit organizations are accountable to their community, and grant funders are a crucial part of this equation. When organizations willingly share financial information, they showcase a commitment to accountability. This transparency assures funders that their resources will be used responsibly and in alignment with the intended goals.
5. Aligning with Funder Priorities:
Grant funders often have specific priorities and goals they aim to address through their philanthropic efforts. Financial information allows funders to assess whether a potential grantee's objectives align with their own. This alignment enhances the likelihood of successful collaboration.
6. Mitigating Risk:
Every investment carries an inherent level of risk. Grant funders aim to minimize this risk by making informed decisions. By reviewing an organization's financial history and practices, funders can identify potential risks and work collaboratively with grantees to implement risk mitigation strategies.
While it may feel annoying or like overkill, the call for financial transparency from potential grantors is not a mere formality. For a funder, it is a strategic and important step that underlines the shared commitment of both grant funders and nonprofits to create lasting, positive change. Grantors are often faced with hard choices between many deserving, meaningful project or program requests. They must make decisions with limited information. Being able to showcase your organization’s financial literacy and stability can be the key to ensuring that grantors view you as a trusted partner.
One of Ivanhoe Development’s commitments is to challenge existing philanthropic systems to ensure transparent, and barrier-free funding for organizations. We recognize that for many organizations, this level of financial transparency and reporting places a burden on staff. We continuously work with funders to restructure reporting practices and appropriately question the balance between necessary financial transparency and burdensome requirements that do not directly facilitate an organization’s access to funding. This continues to be a work-in-progress for the philanthropic community.
