Grants are a cornerstone of nonprofit finance. Successfully managing them, from award to audit, is essential for nonprofit sustainability and compliance. This means building systems that ensure every dollar is tracked, every requirement is met, and your organization is always audit-ready.

In this article, we provide an overview of the grant lifecycle, including helpful tips to ensure you manage common challenges successfully. We also discuss how to set up your systems for efficient, accurate, and compliant reporting.

Grant Types and Attributes

Grants are financial support that don’t require repayment. They are made by several types of entities, including government agencies, foundations, corporations, and donor-advised funds. While each has its nuances, most grants share four key characteristics:

  • Contributed income: Grants are typically gifts.
  • Purpose-driven: Funds normally support specific projects or missions.
  • Application-based: A formal proposal is usually required.
  • Funder-aligned: Your project often must match the grantor’s mission.

How to Manage All Stages of the Grant Lifecycle

There are three main stages of a grant lifecycle that you’ll need to manage carefully to secure funding, stay compliant, and avoid audit findings: pre-award, award and implementation, and post-award. Each stage requires cross-departmental coordination. In addition, here are some stage-specific tips to keep in mind:

Pre-Award: Identify opportunities, build relationships with funders, and develop strong proposals. Always read eligibility criteria and follow instructions. Develop a strong narrative that aligns with the grantor’s priorities, include a realistic budget with direct and indirect costs separated, and demonstrate support from multiple sources in your proposals.

Award and Implementation: Review the agreement and accept the award. Use a grant intake form to document key details, and ensure your team understands compliance, financial, and communication requirements. Thank your funders and continue to communicate proactively with them using their preferred channels and frequency.

Post-Award: Track income and expenses, set internal reminders ahead of reporting deadlines so you can investigate and explain any variances and submit timely reports. Centralize tracking information for development, program, and finance staff to access, monitor, and maintain audit readiness. For close-out, use a checklist to ensure you’ve satisfied all compliance, financial, and project management requirements.

How to Set Up Your Accounting System for Better Grant Management

A solid foundation for successful grant management starts with your chart of accounts, but make sure you only create accounts that are standard for your sector and that you will use year after year. Don’t create a new account for every grant or project. Instead, use dimensions in your accounting software to track activity by program and funder.

In QuickBooks Online, you can use ‘classes’ and ‘customers’ to track activity by program and funder, respectively, and keep your reporting clean and efficient. (View YPTC’s grant management webinar for more detail and tips on using these QBO features.)

As your grant portfolio grows, consider specialized grant management software with centralized, collaborative, and automated features.

How to Account for Grantor Conditions and Restrictions

When accounting for grants, understanding the difference between donor-imposed conditions and restrictions is critical:

  • Conditions affect the timing of revenue recognition—that is, conditions must be met before revenue is recognized. A cost-reimbursement grant requiring the recipient nonprofit to incur qualifying expenses before they can keep or receive the funds is a common example of a conditional grant.
  • Restrictions limit how or when funds can be used. They do not delay revenue recognition, but they do affect financial statement presentation—that is, donor-restricted funds are presented as net assets with donor restrictions on your balance sheet and unrestricted funds are presented as net assets without donor restrictions. A grant received to fund a specific program and a grant received for use after a specified date are examples of donor-restricted grants.

Pro tip: Restrictions can be implied (e.g., multi-year grants) or explicit. Always review your grant agreements and the accounting standards carefully and consult with a trusted expert if you have questions.

Want to Learn More?

Check out these related resources:

Logic over Luck: Revenue Recognition for Nonprofits – View this on-demand webinar to brush up on the accounting guidance for nonprofit revenue recognition, including how to distinguish contributions from exchange transactions and account for each properly.

Nonprofit Financial Reporting: Building a Simple System for Complicated Needs – This on-demand webinar will help you build an accounting system that delivers streamlined reporting, greater accuracy, and operational efficiency.

Spring Into Stability: Exploring Cost Allocations and a NICRA Amid Funding Uncertainty – In this on-demand webinar, we dive into cost allocation methods and negotiated indirect cost rate agreements (NICRA), providing actionable insights that will help you strengthen your organization’s financial resilience.

Ready to Strengthen Your Grant Management?

YPTC’s team of nonprofit accounting experts is here to help you navigate every stage of the grant lifecycle. From grant research and proposal development to accounting and audit support, we offer tailored solutions to keep your organization financially healthy and drive mission success.

Contact us today to learn more about our grant management and nonprofit accounting services.

Share: