Grant Readiness: Seven Questions the Board Must Answer
Let's talk about grant readiness and the seven questions the board must answer before you write the proposal.
I recently consulted with a nonprofit board on building a grant portfolio. Since its founding, the organization had depended on a local government grant to cover more than half of annual operating expenses, funding its one full-time position.
Unfortunately, that grant had failed to renew for two funding cycles, leaving the board members to cover a significant revenue shortfall for four consecutive years. As we set out to identify new sources of grant support and map out a successful grant development and acquisition strategy, it was clear there were critical questions to answer first.
For any grant writer or development officer charged with identifying and securing new grant revenue, it can be difficult to know where to begin. Board leaders and executives may overestimate the organization’s readiness for grant funding and may underestimate the expectations of grant-making entities.
In a strategic grant program, a grant seeker approaches prospective funders because the nonprofit’s mission aligns well with the funder’s priorities, determined through research via the funder’s website, reviewing the IRS Form 990, and hopefully a conversation with foundation staff. Successful grant-seeking organizations understand and clearly communicate to the prospective funder exactly how the grant funds will help the funder and the nonprofit, working together, achieve the desired impact.
For organizations new to grant development, for those that may be struggling to secure the right kind of grant support (unrestricted v. program support), or for those seeking to expand or redirect grant support to newer initiatives, working with the board and senior leadership to answer the following questions can help illuminate a clear and successful path forward.
1. What is our theory of change?
For an organization that has not yet articulated its theory of change, engaging the board in answering the questions that help to define not only the strategies and activities of the nonprofit, but also its “why,” is foundational – and a critical first step in building a successful grant acquisition program.
Briefly, a theory of change is how an organization goes about achieving long-term impact in the world. The process of defining the theory of change begins with the end in mind. Working backward from the desired change in the beneficiary ( e.g., a student living in low-income circumstances graduates from college), the organization maps backward:
- Short-term and intermediate outcomes (the student completes 10 th grade on time, selects college prep courses, meets with college counselor, and attends one-week summer study program) that are the direct result of
- Measurable outputs (students complete campus tours, meetings with counselors, action plans, camp attendance) which are based on the organization’s
- Activities (provide college readiness counseling, school-based workshops, summer camps, and campus tours).
Theories of change can follow any number of formats but ideally should fit on one page. Depending on the complexity of your nonprofit’s programs, it may make sense to build a theory of change for the overall mission of the organization and separate theories of change for specific programs or projects.
With your theory of change in hand, it should be easier to answer the next key question before you approach any funder for a grant.
2. What is the return on investment we offer to this potential funder?
Working together , staff and board must determine and clearly articulate how an investment in their organization will impact the community. What problems does it help solve? How many lives will be changed as a result of the grant? And how do we define and measure our success?
If the organization has not already defined its theory of change, answering this question will require discussion and reflection. To communicate the impact of any grant spent, an organization must show not only:
- How it does what it does ( e.g., intervention, activities, programs)
- Why it does what it does (mission, vision, long-term impact)
- How and when it measures success and how it uses evaluation to improve the quality of its work.
A nonprofit that can connect its activities to long-term impact is equipped to measure how those activities contribute to that impact, and through evaluation can build on past successes and learn from challenges is well positioned to communicate return on investment to a potential grant maker.
3. What are our strategic priorities for the next year? The next three years?
A written strategic plan is an organization’s roadmap, and a valuable asset in successful grant seeking. An effective strategic plan:
- Ensures that board and staff understand and agree on strategic and tactical priorities;
- Sets the goals for growth and expansion;
- Clearly defines the timeline for each goal and tactic;
- Includes a plan to measure and evaluate success and lessons learned; and
- Defines checkpoints to recalibrate the plan as necessary.
If the organization can afford or seek funding for it, a strategic planning process facilitated by an outside consultant offers an outside-the-organization perspective and the opportunity to understand how the organization fits into the community’s social ecosystem.
The strategic plan should identify ongoing and extraordinary funding needs and include contingency budgets for new programs, projects, or capital expenditures. Depending on the availability of resources, any new projects or investments will proceed or not, as the necessary funds are raised.
Finally, many funders will ask if the organization has a strategic plan. Having a plan – one that strikes a thoughtful balance between ambition and realistic goal setting – signals to a prospective funding partner that the nonprofit is committed to growth and evaluating impact.
4. For project grants: What is the return on this investment for our organization?
Most nonprofits would agree that in an ideal world, every grant would provide some level – if not 100 percent – general operating support. That said, many funders prefer to target grant support to specific projects, with clearly defined parameters and deliverables. In a new funding partnership, a grant maker may prefer to start with a project grant, and once comfortable with the organization’s ability to deliver results, might shift to providing less restrictive support.
Every project grant creates some opportunity cost for the organization. There are always expenses, direct and indirect, that will not be covered by grant funds. In choosing to undertake a new initiative or collaboration, the organization must choose not to do something else. Here, the strategic plan can help determine project priorities. A detailed, long-range plan that outlines priorities, timelines, and anticipated funding needs, provides a framework for a cost-benefit analysis of any project grant. Does the project advance the organization’s strategic goals? And does it align with the proposed timeline for those goals? If not, what are we willing to forego or postpone in lieu of this new opportunity?
Project grants can levy a high “tax” on small nonprofits with limited resources and capacity. Before undertaking a complex proposal process, the board and staff should be in agreement, and very clear that the project aligns with strategic priorities and/or offers leverage for additional funding (from foundations or major donors), and is sustainable beyond the grant period.
5. What is our track record for providing services/programming in an efficient, effective way?
While not all grant makers evaluate impact exclusively by the total number of individuals the grant will help, it is an important metric to keep in mind, particularly where a nonprofit’s cost per beneficiary is unusually high. This can be an “aha” moment for your board.
Consider, for example, a nonprofit that provides 24/7 home health aides to ten adults with disabilities in the community. A $10,000 grant to this organization will benefit ten individuals in the community at a cost of $1,000 per beneficiary. If the same grant maker awarded that $10,000 grant to a nonprofit that serves one hundred individuals, the cost per beneficiary is $100 each. Understanding cost per beneficiary can help set board expectations, especially when seeking or relying on highly competitive grants, such as United Way or community foundation impact grants.
Understanding the organization’s programs and services record – by the numbers – can yield surprising data. Does the organization regularly track and share with stakeholders how many individuals it has served per year and over how many years? That number may be higher or lower than previously understood. It may be that the total number of beneficiaries is impossible to determine, for example, a job placement program may only track participants who get jobs within six months, but not those placed after that period. Is there a better way to track activities, results, and long-term impact?
Once the organization determines its practical and meaningful measures of activities and results, it’s important to create dashboards and schedule timely reports to enable staff and board identify trends (up and downward) and progress toward goals.
6. What is our experience and capacity as fiduciary agents for this investment?
A best practice when completing any grant application is to start with the attachments. What financial requirements, such as an annual audit, IRS Form 990, and organizational budget, does the funder have?
Funders require these documents to assess an organization’s financial strength (assets minus liabilities and the resulting operating surplus or deficit), fiduciary oversight (is the 990 filed in a timely manner and completed as required?), and financial accountability and transparency (third-party audit or treasurer’s report, clearly articulated cash handling procedures). Funders, like investors, need to be assured that the grant funds will be tracked and spent as agreed, and their specific requirements can vary and are included in application instructions. Minimally, evidence of fiduciary capabilities is demonstrated in:
- Current IRS Form 990
- An operating budget and means to track year-to-date expenditures
- A regularly reviewed statement of activities (income v. expense)
- Dual-control process for handling cash and bank accounts
- A board treasurer
- Audited financial statements
- For organizations that do not prepare audited financial statements, a year-end Treasurer’s Report
If the organization is lacking any of these financial requirements, the board treasurer, executive committee, and staff must work together to develop the processes, reporting, and a clear assignment of responsibilities to mitigate possible financial risks and exposure to mishandling resources.
7.What is our plan for sustainability beyond the grant period?
Most grant applications will ask this question in one form or another and the board must understand fully the financial impact of any grant on the organization. For requests for general support, this question seeks to understand the overall fiscal health of the organization – that it is not singularly dependent on one or two sources of support. It also seeks to understand the organization’s commitment and ability to fundraise proportionate to the need for contributed support. For an organization where a significant percentage of expenses must be covered by contributions, is there sufficient board and staff expertise, written fundraising goals, an action plan and record of success to sustain and grow support?
Every nonprofit has its own ideal mix of contributed and, in certain cases, earned revenue. While grants are a part of the sum of contributed revenue, the ideal percentage is unique to each organization and should be regularly measured and evaluated by the board. Whether many or just a few grants represent a significant percentage of the organization’s income, or an organization receives a “windfall” grant, the board must prepare for the expiration of the grant funds and the potential of a nonrenewal. If the grant supports a program expansion or new initiative, how will it continue to be funded, or will it continue to be funded at all? Is there an opportunity to leverage the grant to attract new funders? Is there an opportunity for additional earned revenue?
Ready, Aim, Fire
Winning new grants and renewing and increasing support from current funders is a challenge for even the best-prepared nonprofits. We hear all the time from program officers that there are far more grant requests than available funds can possibly support. So often board members ask their fundraising staff and committee members, “How can I help you?”
Board input is an integral component in developing a fundraising strategy and increasing grant readiness. These questions, when answered with reflection, honesty, and self-awareness can transform fundraising across the organization, not only for grants but also for leadership and annual giving programs. Any gift, no matter the number of zeroes attached, is given to create change in the world. The more concisely the staff, volunteers, board, and funding partners of your nonprofit understand and can share the impact of their giving to your organization, the more support you will attract. And it is much easier to ask for that support when you can demonstrate how every dollar invested in your work matters to the individuals and community you serve.
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