Getting grants - Will your application be successful?

The spring grant cycle is opening. Like athletes in the starting block, nonprofits are all out there seeking that one magical grant that will sustain or even rescue their organizations. Can your organization win the race? More to the point, are you even competitive?

Charitable institutions form to address a problem and that problem, or rather the solution to it, defines their mission. Remedying lack of access to food, shelter, housing, education, safety, and healthcare are all worthy goals, and they usually have access to some sort of non-governmental funding. Unfortunately, there are far more organizations needing money than there are grantors to supply it. Some get the financial backing they need and a great many more do not. Ever wonder why your proposal was turned down? 

I asked grantors just that question. The following is a typical reply to an informal survey I sent out in 2011 to 24 foundations requesting information on why they might deny funding to smaller charities, which I defined as NPO's with from $25K to $1M in annual revenue.

"Thank you for contacting us. Our four (4) main reasons for denying a request are:

1. Poor or no financial reporting and/or financial controls.

2. Lack of effective organizational or management structure.

3. Insufficient ability to provide meaningful results, or no proof of impact.

4. Not sufficiently related to our mission.

Comment:

We require evidence that there is an effective management team in place, and that the organization is run in a professional manner. Since we require a minimum  $50K in revenue and a determination letter, this means that we are normally dealing with organizations that have been in existence for 4 years and up. Size doesn't seem to necessarily dictate a well-run organization. We have denied nonprofits with over a million dollars in revenue, simply because they had poor or unprofessional business practices. This seems to go hand-in-hand with relatively poor program design, lackluster or undocumented results and poor fiscal management."

Twenty-one out of the original 24 foundations contacted replied to the survey. They ranged from foundations with less than fifty thousand dollars in annual grants to four that awarded more than five million dollars annually. The number one complaint was that the applicants were not "professionally managed". I didn't get a single reply that indicated the mission was unworthy or unrealistic.

The argument that charities can't or won't adopt for-profit business management practices will probably rage on for as long as there are nonprofit organizations. For some reason, there seems to be a misconception about what constitutes running a nonprofit like a business, and whether that is a good or bad thing. Many nonprofits are very angry that "it's all about the money, not the mission".

In what way does being accountable for the way in which someone else's money is used conflict with mission accomplishment? Is it fear of being judged, a fear of being held accountable for the funds, or a resistance to oversight, i.e. a loss of control?  Why do boards adamantly declare that they don't need anything from the for-profit world and then ask for funding that was probably at least originally based in that same for-profit world?  What standards would they like to have applied to receive funds? 

There is a finite amount of money available for the support of all the charities in the world. It seems somewhat reasonable that the grantors would want to see that money used to provide maximum results for each of the dollars they provide. The methodology for determining that effectiveness isn't a for-profit or a nonprofit method. It is just a method. X dollars provides Y result, or it doesn't. Proving and accomplishing that maximum effectiveness requires the same management procedures that turning a profit in a company does. The procedures are simply tools used to arrive at your desired result.

If your goal is mission accomplishment, wouldn't it make sense to put yourself in the best position to achieve that goal?  Running your nonprofit in a business-like manner isn't about becoming an unfeeling and uncaring robot. It's about putting yourself in a position to win the backing you need to accomplish the mission you love. 

Nonprofits aren't businesses. Really?

Every once and a while I see someone railing against the idea that nonprofits should be managed much like their for-profit counterparts. After all, nonprofit staff can and actually should work for peanuts, right? All supplies will be donated, all services will be free, and the quality of their programs will still be top-notch.

If only it was that simple.

This morning I was forwarded a link to a nonprofit asking for contract grant writing services. The ad sounded great. 21-year old community healthcare nonprofit, multi-million dollar revenues, offering a long-term contract with a somewhat reasonable budget range for grant writing services.

However, upon looking up their 990 history, I could see why they were looking for grant money. Over the past five years this nonprofit showed steadily declining income. Nearly their entire revenue stream was based on one source of income, i.e. government payments for services. Those payments had dropped by almost 30% in that same five-year time frame. In the meantime their payroll costs had gone up by almost the same amount as a percentage of income. In 2012, they posted their first loss ever and it was in the mid-six figure range.

Healthcare is a very labor and supply-intensive field. Good help does cost real money, supplies are not free, the utilities still have to be paid with real money, and being a nonprofit doesn't change that.

You can see where this nonprofit is going. Newly mandated increased costs for healthcare and the natural progression of increasing salaries as employees stayed in place longer and improved their skills was pushing them over the edge. In their entire 21-year history, they had raised less than one million dollars in funding not related to the provider payments from the government. 82% of their income was now going to employee-related expense. Even in healthcare, that's out of line.

Nonprofits are not immune to market forces or economic reality. If your costs of operation outstrip your income, you are going down the tubes, no matter how big or small you are.

I don't know exactly what happened to this nonprofit. Maybe their patient days went down, maybe the provider payments were less than previously received for services, maybe the employees were asking for unreasonably high salaries or the perks had gotten out of hand. Who knows? The point is, their trend line was obviously going the wrong way, and they waited too long to try to address it. Now they are operating in the red, and that means they are unlikely to be considered for grant funding.

If they survive it won't be due to hiring a grant writer. It will be because they get a hard-nosed business management consultant in there that can get their business operations back on track. That's where they should be spending their remaining dollars.

There is no doubt that there are real differences between the motivations and goals of nonprofits vs. for-profits and that is as it should be. I addressed that in another post. Still, whether you like it or not, the nuts and bolts of accomplishing  the end result are pretty much governed by the same realities. Ignore that at your peril.