Understanding the lingo when it comes to nonprofit finances

The best way to understand how a foundation awards a grant is to look at that grant money as an investment. The foundation is going to look at your nonprofit’s bottom line to make sure that your organization is sustainable. That is, it’s not going to close its doors any time soon.

Foundations look at a nonprofit’s finances via the financial statement and 990, both of which may be requested as an attachment to a grant proposal. It’s important to know the difference, so let’s take a quick look at what each of these items actually are:

Financial statement: Also called a financial report, this document includes information on the nonprofit’s income and expenses for the year. It has several subsections, including the balance sheet (a report on the charity’s assets and liabilities) and income statement (also called a profit and loss report, detailing income and expenses for the year). At times, foundations will ask simply for an income statement. The Small Business Administration has a great tutorial on preparing financial statements.

Nonprofits bringing in more than a certain amount of money each year will have to get their financial statement audited, a requirement that differs by state. For more on the requirements surrounding audited financial statements, visit the Council of Nonprofits.

Then, there’s the Form 990. This is the form all nonprofits are required to file with the IRS each year to maintain their 501(c)3 status — with a few very rare exceptions you can read about here.

Some foundations will ask for the past year or two or more of 990s; some want to see 990s and financial statements. Everyone is different, so be sure to get a good handle on the guidelines before you send in these often lengthy documents.


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