Applicants spend weeks on the narrative and an afternoon on the financial attachments. Many funders check whether the organization is financially sound as part of deciding how much weight to give the story.
You can't hide the numbers, but you can know them first. This article covers which documents funders review, what they look for in them and how to explain a deficit year or a concentration of revenue before a reviewer draws their own conclusion.
What funders review
Different funders ask for different documents, but the usual set is short:
- Annual financial statements, audited or reviewed where you have them.
- The Form 990, for tax-exempt organizations that file one.
- The organizational budget for the current year.
- The project budget in the application.
- Audit reports, for organizations that spend enough federal money to require one.
For federal awards, the review is built into the rules. 2 CFR 200.206 says an agency assessing the risk of an applicant should consider its financial stability, the quality of its management systems, its history of performance, and audit reports and findings. The risk criteria have to be described in the funding announcement, so the notice tells you what will be examined.
The Form 990 is public
Your 990 is not a private document. The IRS requires a tax-exempt organization to make its annual information return available for public inspection for three years, starting from the due date or the filing date if later. Schedules and attachments filed with the return are included. Organizations other than private foundations don't have to disclose contributor names and addresses.
Which form you file depends on your size. According to the IRS, Form 990-N is for organizations whose gross receipts are normally $50,000 or less. Form 990-EZ is for those with gross receipts under $200,000 and total assets under $500,000. Larger organizations file the full Form 990. An organization eligible for the 990-N can choose to file a fuller return instead.
Because funders can read it, a useful habit is to read it first. Check that what it says about your revenue, your programs and your leadership matches what your application says. A mismatch looks careless at best.
When a single audit applies
A nonprofit that spends $1,000,000 or more in federal awards in its fiscal year must have a single audit, or in limited cases a program-specific audit, under 2 CFR 200.501. OMB's 2024 revision of the Uniform Guidance raised that threshold from $750,000, so ask your auditor which threshold applies to a given fiscal year. An organization that spends less than that is exempt from federal audit requirements for the year, though its records must stay available to the federal agency, the pass-through entity and the Government Accountability Office.
If you do have an audit, funders will read the findings. A clean audit is a quiet strength. Findings aren't automatically disqualifying, but they are the first thing a reviewer will ask about, so be ready to say what the issue was and what you did to fix it.
What funders look for
The same few questions sit behind most financial reviews.
Is revenue concentrated?
If a single funder supplies most of your revenue, a reviewer sees risk: lose that funder and the organization is in trouble. Diverse revenue, across several grants, individual gifts, earned income and perhaps government contracts, suggests resilience. You don't need a perfect mix. You need to know your mix and be ready to discuss it.
Are there reserves?
Reserves show you can survive a late payment or a gap between awards. This matters more for grants paid on a reimbursement basis, where you spend first and get repaid later. If your reserves are thin, your cash-flow plan matters, so work out how many weeks of expenses you could cover before you accept a reimbursement-based award.
Is there a deficit?
A deficit isn't a disqualifier by itself. Funders care about why it happened and what has changed. A single deficit tied to a one-time event, such as a delayed payment or a planned investment, reads differently from a series of deficits with no explanation.
Do the numbers hang together?
The project budget should reflect the same salary levels, fringe rates and overhead assumptions as your organizational budget. If the application budgets a program director at $85,000 but your own records show $70,000, expect a question. For guidance on matching the pieces, see the budget justification, line by line.
Tell the financial story yourself
When something in your numbers needs explaining, explain it plainly and briefly, in the place where the funder will be looking. Many applications have a short financial section or an attachment where this fits. If the notice has no such place, a brief note in the budget narrative works.
Also keep the project's indirect costs consistent with how your organization accounts for them; indirect costs explained covers the rates and base.
Say a hypothetical community health organization had a $60,000 deficit in its most recent year. A weak explanation is silence. A stronger one reads:
"In our most recent fiscal year we ended with a $60,000 operating deficit. Of that, $45,000 was a one-time cost to replace our client database, which we paid from reserves. The remainder came from a state contract payment that arrived after year end. We received the payment in the first quarter of the next fiscal year, and our board now reviews cash flow monthly."
The numbers add up ($45,000 plus a $15,000 shortfall from the delayed payment), it names the cause, it says what changed, and it fits in a paragraph. A concentration of revenue can be handled the same way: state it, then say what you're doing to broaden the base.
Your next step
Pull your most recent Form 990 and read it as a funder would. Look at where the revenue comes from, how much sits in reserves, whether there's a deficit and whether the program descriptions match how you describe yourself in applications. Write down the two questions a stranger would ask, and draft a sentence answering each. Confirm any audit or filing requirement with your auditor or accountant, since the rules that apply depend on your situation.
Once your financial story is straight, SoliContraX can help you get the rest of the application started and finished, with budget sections drafted from your own numbers. See how to get started.