FoundationsYour foundation exists to make a difference. But in order to make the greatest impact, you’ll need to use your grantmaking power wisely. Here are some guidelines to use in evaluating potential grantees.
The most important consideration in distributing grant money is to ensure the nonprofit organization fits within your foundation’s pillars or areas of interest. You have a mission statement that speaks to the cause you are passionate about and believe you can make an impact on. What are the focus areas aligning with that cause? Your money will go furthest when focused on the organizations meeting those priorities.
Start with reviewing what the nonprofit says about itself and how it defines its reason for existence. But it’s also a good idea to see what others say about the organization and if their views line up with what you’ve learned so far. Conduct a media audit to see what news is out there about the potential grantee, its management, board and founders.
By approving a grant recipient, you are making a significant commitment to its mission and organization. Just as investors perform research before investing in new companies, you should conduct financial due diligence on the organizations you are considering granting funds to.
Run a public charity status check on GuideStar or the IRS tax-exempt organization database. Make sure the nonprofit you’re evaluating is a registered 501(c)(3) with an active status, and it has filed a recent Form 990 (tax return) that appears complete.
Ask if the organization would be willing to share its recent financial statements (either audited or internal). In general, look for organizations that are financially secure with enough working capital, cash or investments to support at least three to six months of expenses, and analyze how much money goes into the charity’s mission versus internal overhead costs. If the potential grantee provides a list of contributors, review it to see if funding has been highly concentrated with one or two larger donors or more spread out, and whether any donors could be considered controversial.
While we can provide general guidelines, it’s also important to note we are in unusual times. Have a flexible mindset and evaluate what’s most important to you — your board may decide it’s willing to make exceptions for organizations highly impacted by COVID-19. Or if you’ve typically been very prescriptive when it comes to the use of funds, you may look to switch to unrestricted grants that allow the grantee to adapt as needed.
Overall, don’t be so robotic in your grantmaking process that you take applications solely on paper. Get to know the potential grantee and understand the organization’s goals. Some charities may be so aligned with your mission as a foundation that you decide to open up financial requirements because you recognize how vital their services are in this time of exceptional need.
And finally, look for ways to loosen the administrative burden on potential grantees. Make sure your application process is simple and not cumbersome, and as you do conduct due diligence, do it in a timely manner.
Keeping up with the many moving parts of managing a foundation takes time that you could be spending on your philanthropic mission. You don’t have to do it all on your own. For more information on how we can help, visit our Private Foundation Management page.
