Your not-for-profit may invest valuable time and effort in its grant proposals. So it’s understandable that you’d be thrilled when proposals are given the green light. But before you accept a grant, be sure to do your homework and ensure it won’t be more trouble than it’s worth. Unexpected consequences can include administrative burdens—and even IRS scrutiny.

Small support, big consequences

Smaller or newer nonprofits are at particular risk of unintended repercussions when they accept certain grants. But larger and growing organizations also need to be careful. As they expand, nonprofits usually enjoy more opportunities to widen the scope of their programming. This can open the door to more grants, including some that are outside the organization’s expertise and experience.

Even small grants can have big administrative consequences, such as extensive reporting requirements. You might not have staff with the requisite experience, or you may lack the processes and controls to collect necessary data. Grants that go outside your organization’s original mission can pose problems, too. For instance, they might prompt the IRS to question your exempt status.

Financial and opportunity costs

Before you accept a grant, review the potential costs. Your nonprofit might incur expenses to complete a program that may not be allowable or reimbursable under the prospective grant. As part of your initial research, calculate all possible costs against the grant amount to estimate its actual impact on your organization.

Also analyze the opportunity cost of the decision. For unreimbursed costs associated with a prospective grant, consider how your organization might otherwise spend that money. Could you get more mission-related bang for your buck if you spent funds on an existing program rather than a new one? Think about how the prospective grant will affect staffing, too. Do you have the people to handle the workload, or will you need to recruit additional staff or volunteers?

Look first

It may seem counterproductive to turn down any form of financial support. But if accommodating a grant’s terms requires staff resources that can be better deployed elsewhere or if the terms threaten your nonprofit’s exempt purpose, it may be better to take a pass. To help prevent wasted time, also consider implementing a more stringent screening policy before applying for grants. Contact us for advice on grants and growing your nonprofit’s revenue.

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