Is there such a thing as too much funding?
It turns out there IS such a thing as a grant that’s too big—lessons and reflections from 25 years in the field.
Last month, I visited the Seattle headquarters of the Bill & Melinda Gates Foundation. It’s a beautiful campus with many shared office spaces and plenty of glass to amplify sound. While waiting for a meeting to end, I overheard a Senior Program Officer exclaim, “They did what with our grant funds?!”
Uh oh.
Those are words no grantmaker wants to say, and no grantee wants to hear. Receiving them from a Foundation is one thing…even one as big as Gates. Hearing them from a Government Agency is another thing altogether.
Your approved grant budget is legally binding.
Unapproved changes in line item spending could have very serious financial consequences– for your organization, your Board of Directors, and your Senior Staff.
Large grants mean you need to be grant-ready.
You may think a large grant will solve your financial stresses. And it can certainly help. It may even be exactly what you need! But grant readiness when pursuing and accepting large grants is key. It applies to both small nonprofits just starting out and large nonprofits with a long and successful history of winning grants. But, like people who win the lottery, your organization may find out what researchers already know: lottery winners are not, in fact, happier. Large pots of money can stress and overtax people and systems.
How one nonprofit quadrupled its grant revenue in 12 months.
During my time with Proyecto Aldea Global (PAG) in Honduras, we quickly went from $250k in annual grant revenue to almost $2M when funders committed large amounts to disaster relief.
This increase was a huge victory–no question. But it also brought very real growing pains.
We knew we had to prepare the organization for growth. We built both direct and administrative costs into the proposal and approved budget:
Equipment needs like trucks for navigating washed-out rural dirt roads and shallow river beds to get to the remote areas where we worked.
New financial software to better track spending.
Temporary staffing including admin support.
Building materials for new houses.
Silos for farmers to store their harvests so food wouldn’t rot over the winter or to give them options to sell when the market was high.
And of course, a contracted external evaluation to measure progress and gauge lessons learned.
Did bigger grant dollars help…or hurt?
During the grant period, PAG helped thousands of people recover from devastating floods caused by Hurricane Mitch. It was an accomplishment the organization and its larger international affiliate, Mercy Corps, were proud of. And rightly so.
After winning the grant, PAG went through the process of establishing a NICRA or Negotiated Indirect Cost Recovery Agreement, to recover administrative costs. (See this infographic for more detail NEGOTIATED INDIRECT COST RATE AGREEMENT(NICRA)).
But in the end, the Executive Director and CFO weren’t sure they would do it again. Going back to a smaller operating budget after a period of big grants was welcome. The organization could right-size and get back to the smaller, more intimate organization that the Executive Director had cultivated for years. And now, many years later, that smaller organization continues doing great things.
Get approval from your funder about changes in line item spending for grant compliance.
Now, getting back to the financial consequences of not adhering to the OMB (Office of Management and Budget) detailed spending principles and circulars. Have I ever, in 25 years, personally experienced a funder trying to get their money back? No. Nor have I ever known any organization to which that has happened.
But the reality is grants almost always have a budget and strict rules (especially government grants) for how much you can spend in any budget category or line item and for what. Go above a threshold of 5% or 10%, and you usually need to ask permission before you make new spending decisions.
Budget adjustments are usually approved if you’ve spent the time cultivating your relationship with your funder, building trust, and being financially transparent. But in today’s fast-paced nonprofit world, you may not always have the time or the staffing resources to do that, despite your best intentions.
For an idea of how a very large grant benefited one organization, check out LISC’s report about MacKenzie Scott’s transformative $40M unrestricted gift.
My advice to those seeking large grants is this:
Recognize that a grant doesn’t have to be large to be transformative and impactful for your organization.
Understand the pros and cons of seeking—and being awarded—larger dollars.
Make sure you have the right systems in place to manage a large grant.
If you don’t have those things, build them into the proposal if possible.
Consider hiring an experienced consulting firm to help you seek out and apply for the grants that will position you for success.
Good luck!
