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The importance of grant management in nonprofit accounting

August 14, 2021
A woman does calculations on a calculator as part of her grant management and accounting work.

Nonprofit organizations are unique in that they rely heavily on the generosity of others to operate effectively. This means they must keep in mind various forms of fundraising, always looking for the latest trends of the sector to incorporate into their strategies. 

A great source of revenue for nonprofit organizations is grants. 

To make the most of both your grant monies and your individual fundraising revenue, your organization needs an effective management system and a plan for all of the awarded funds. That’s why we’ve developed this guide to help nonprofit leaders better understand the challenges of managing grants and tips to address them.

When your organization submits grant proposals, it’s essential that you have an effective method of organizing those various grants. Doing so will help you achieve your fundraising goals and remain in good standing with your grantmaker. Let’s dive into grant management best practices.

Types of grants

Organizations need to record awarded monies from grants at different times depending on the type of grant. This is to stay compliant with the Generally Accepted Accounting Principles (GAAP)

Jitasa’s grant management guide provides the following summary image of the different types of grants: 

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Effective grant management will help you keep track of the types of grants you’re applying for and ensure you appropriately record the money in your fund accounting system. 

Recording unconditional grants

When you host a Giving Day for your organization, a lot of the money you generate is considered “unrestricted,” meaning it can be used however you want. For grants, you can earn unrestricted funding through unconditional grants.  

When you apply for an unconditional grant, ensure you still have a plan for how you’ll use the awarded funds.

Unconditional grants are recorded as soon as you know you’ve won the grant. If you receive an award letter, you can record the grant right after you receive it. If there is no reward letter, you can record the grant monies after you receive them. 

Recording grants with contingencies

Some organizations require your organization to fulfill certain conditions in order to receive the funds. Generally, this money comes in installments over time as your nonprofit meets the grantmaker’s requirements. 

In this case, your nonprofit organization would record the money as it is awarded to your organization. If it’s provided in two installments, you would record those installments as they’re paid to your organization. 

Recording reimbursable grants

Reimbursable grants are given to organizations only after they’ve incurred the costs for the program that the grant will cover. For instance, if a company provides a grant that will cover an educational program for your nonprofit, you’ll need to first pay for the program. Then, the grant will be paid to reimburse your organization. In this case, your organization will record the expenses as they occur, followed by the funds as you receive them.

Tracking your grants

Because there is so much variation in the type of grants you can receive, where the monies will be allocated, and how you’ll report on the funds, it’s necessary to have an effective system to track grant funds. 

When it comes to grant management and tracking, your organization should remember to: 

  • Set up a concrete budget: An effective budget allows your organization to compare the projected and actual flow of grant funds as you use them. You will be able to provide accurate information to your funder when you report on the grant and show exactly where the monies have been spent. 
  • Create reminders for deadlines: Set up calendar reminders as well as reminders in your accounting system to make sure you meet important grant deadlines. 
  • Leverage fund accounting software: Your accounting software will have the functionality to help you record all of the relevant information about grants, especially if that software is specifically designed for nonprofit organizations.

Effectively tracking your grants will help your organization ensure you never miss a deadline and that all of the funds are used for the appropriate projects. It’s preferable to set up your system when you start applying for grants and essential when you win several grants. 

Tips to win more grants

To manage your grants, you first need to win them! Luckily, with a good grant writer and a compelling purpose, you’ll be on track to win more funds. To help you, we’ve compiled a list of tips that can set your organization up for success:

  1. Prioritize your needs and determine the costs of each: When you prioritize your needs, you’ll have a better idea of where grants would be the most useful in your strategy. Then, you can search for the grants that will be most helpful for your purpose. 
  2. Start with a rough outline: Before you start applying for grants, create a rough outline of the project you want to create and how you’ll use the funds. This will help make sure you communicate the most accurate information to your funders. 
  3. Tell your story in your grant proposal: Grant proposals lean heavily on metrics and factual information but should also provide emotional stories to demonstrate the impact they can make. Tell them the story behind your purpose and how it impacts real people, backing up your claims with facts and statistics. 
  4. Conduct detailed research for your proposal: Make sure to allocate enough time and resources to research grants and communicate with funders. 
  5. Triple-check the instructions for the grant: If you don’t follow the instructions for the grant, your reviewers might not even see your application. Double and triple-check to make sure you’ve provided all information and have met all of the necessary requirements. 
  6. Ask a third party to check your math: Ask a third party like your nonprofit bookkeeper or accountant to double-check the numbers for you to make sure you’re creating the best possible experience for your funder. 

Grant proposals require time and effort to make them convincing and effective. Use your proposal to plan out projects and funding for your organization. Then, communicate those plans to your funder. 

The power of grantmaking

Grantmaking is a key source of funding for nonprofit organizations. Make sure you have a comprehensive understanding of how grants are awarded and recorded so that you never miss a deadline and ensure funds are used appropriately.

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