Nonprofit organizations rely heavily on grant funding to support their missions and programs. To increase your chances of securing grants, it’s crucial to have your financial house in order. This blog post will cover the key financial documents that every nonprofit should have ready before applying for grant funding, as well as other grant application tips.
Why Financial Documents Matter for Grant Applications
Funders want to ensure that their money is being used wisely and effectively. By providing well-organized and accurate financial documents, you demonstrate your organization’s financial health, transparency, and ability to manage funds responsibly. These documents can significantly enhance your credibility and increase your chances of securing grant funding.
Expert Advice from the Nonprofit Bookkeeping Professionals
At the Consonance Group, we have decades of experience in helping nonprofit organizations with their bookkeeping and financial processes. Financial operations from bookkeeping and payroll to CFO roles can easily be delegated to our team for efficient, accurate, timely, and cost-effective performance. We specialize in keeping nonprofit and small business books organized, up to date, and, most importantly, useful for management. In addition, we provide education and support to our clients and audience to help them navigate the complexities of the nonprofit financial landscape. Learn more about our services and experience.
Key Financial and Organizational Documents
Here are the essential financial and organizational documents that every nonprofit should have in place before applying for grant funding:
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Organizational Chart:
A clear organizational chart outlines your nonprofit’s structure, including roles, responsibilities, and reporting relationships. This document provides funders with a visual representation of your organization’s governance and management.
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Board of Directors List:
A list of your board members, their contact information, and their areas of expertise is essential. This document showcases the experience and commitment of your board to your organization’s mission.
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IRS Determination Letter:
This letter confirms your organization’s tax-exempt status with the IRS. It’s a crucial document that verifies your nonprofit status and eligibility for most grant funding.
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Financial Statements:
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Income Statement (Profit and Loss Statement):
This statement reveals your organization’s revenue and expenses over a specific period. It provides insights into your organization’s financial health and sustainability.
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Balance Sheet (Statement of Financial Position):
This statement offers a snapshot of your organization’s financial condition at a specific point in time. It shows your assets, liabilities, and net assets.
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Budget:
A well-prepared budget demonstrates your organization’s financial planning and management. It outlines your expected income and expenses for a specific period. Consider also sharing a comparison of your annual budget versus actual spending in the most recent fiscal year.
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Cash Flow Statement (Optional):
This statement tracks your organization’s cash inflows and outflows over a specific period. It helps funders understand your organization’s cash position and its ability to meet financial obligations.
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Audited Financial Statements (Optional but Recommended):
While not always mandatory, audited financial statements provide independent verification of your organization’s financial information. If your organization’s annual revenue exceeds a certain threshold, audited financial statements may be required by funders. Some grantors require an annual audit regardless of the size and annual revenue of your organization. For more information on annual audits, read our guide.
Tips for Effective Financial Document Preparation:
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Accuracy and Clarity:
Ensure that all financial documents are accurate, complete, and easy to understand. You may need to work with a bookkeeper, CPA, or auditing firm to ensure accuracy across all your financial statements.
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Consistency:
Use consistent accounting methods and reporting standards throughout your financial documents. Independent auditors can help point out any inconsistencies.
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Up-to-Date:
Keep your financial documents up-to-date and readily available. Don’t scramble to update your financial statements right before grant deadlines.
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Organization:
Organize your financial documents in a clear and logical manner. Consider using a binder or digital folder to keep everything together. When using external grant writers, easy access to the latest information is critical.
By having these essential financial documents in place, you demonstrate your organization’s financial stability, transparency, and ability to manage grant funds effectively. This can significantly increase your chances of securing grant funding and achieving your mission.
Let the Consonance Group help you stay prepared
Is your financial house in order? We can help you create systems and processes that make keeping financial records up to date a breeze. Updating these documents shouldn’t be cumbersome. Let us focus on the back office organization, so you can focus on your mission. We can help! Contact us today to get started with a free consultation.