Appendix A

Grant Funding: Why or Why Not?

Sometimes, nonprofit organizations seek support from other sources such as grants from private foundations or government-funded projects, and charitable donations from private individuals or groups. Program and foundation leaders review requests and proposals for funding to consider how their granting of financial support could help deserving organizations extend their services to people in need. Usually there are multiple organizations competing for limited funds, and the funding organizations need to consider how well each applicant organization is likely to utilize the funds responsibly and effectively to get valuable results for the populations served. Often there is a structured Request for Proposals (commonly referred to as RFP) that requires applicant organizations to respond to many questions about how they plan to deliver services, demonstrate their effectiveness, and track and account for their use of the funding. In addition to specific questions about programs and services, they look at many areas of the applicant organizations, including their leadership teams and indicators of financial health. Profit and Loss statements are examined to make sure administrative overhead is not out of proportion to direct service costs. Balance sheets, which look at assets and liabilities, are important in ensuring that applicant organizations have enough net worth (value remaining after covering liabilities) to be able to continue operating into the future.

Erica Snow, Portfolio Director at the Colorado Health Foundation, described the due diligence she and her team conduct to select projects to invest in and organizations to fund. Factors they look at include:

1. Senior leadership and their commitment such as participating in site visits from funding organizations:
   • Executive teams, with their longevity and turnover
   • Board of Director representatives and Board governance
2. Financial statements, indicators of long-term sustainability:
   • 3 months cash-on-hand
   • Debt-to-equity ratios
   • Secured funding moving toward self-sustainability
   • Low-interest investments
   • Risk propensity—It is good to see some stretching.

She noted the challenge in looking at performance metrics for funded projects. These can be difficult to compare objectively because they are not standardized across organizations and populations served. There is a difference between output-oriented metrics, which reflect efforts and process, versus outcomes, which demonstrate results.

Often foundations prefer to fund specific projects to help an organization get started in a new line of services, rather than funding general operations. Funders expect the grant recipients to account for their use of funding and the results. This can add a lot of extra work and overhead cost that can make grant-funded projects unprofitable unless such costs are budgeted into your grant proposals and accepted by the funders in their funding award contracts.