Grant Writing: A Guide to Financial Preparation for Arts and Culture Nonprofits

Grant funding is an extremely important source of revenue for nonprofit organizations – particularly those in the arts and culture space. Building a diverse revenue base ensures organizations are not over-reliant on any one funding source, improving sustainability and affording nonprofits the resources to invest in important activities that further their mission. 

There is a wide range of grant funding opportunities available, including grants from charitable organizations, corporations, family offices, and government agencies. The benefits nonprofits derive from these grants are not purely financial: they also serve as an indicator of the sophistication and professionalism of your organization, boosting your credibility in the eyes of donors. 

Successfully securing grant funding demands nonprofit organizations to take a comprehensive approach toward the grant writing process. A major component of this lies in preparing the relevant financial information for grant writers. 

In this overview, we explore the steps that arts and cultural organizations should take to prepare their financial information for the grant writing process. Throughout, we’ll feature the perspectives of Carolyn Polakowski, President of Cay Communications, and Ellen Queen, Grant Writer for Neighborhood Cooperative Ministries. 

Preparing for an Effective Grant Writing Process

It’s always advisable for nonprofit organizations to take a targeted approach to identify grantmakers that align with the mission and values of their organization. 

“We really try to look at specific funders and what their focus is, then apply to those who are a match for our organization”

–– Ellen Queen, Grant Writer, Neighborhood Cooperative Ministries

Once suitable grantmakers have been identified, take a closer look at the specific applications and guidelines for each grant. Every foundation has its own set of guidelines and nonprofits must follow these to ensure their application is given full consideration. These guidelines typically specify the ranges that the funder typically makes grants for, and nonprofits should make sure their funding asks are aligned with these. It can be helpful to review the grant-making organization’s Form 990 to better understand the types of activities they tend to fund. 

Work to develop a thorough proposal that clearly articulates the mission of your organization, as well as the specific project or program that the grant funding will support. Be concise and clear, avoiding technical jargon and focusing on highlighting your organization’s track record. As a general rule, nonprofits should have at least two years of financial records before establishing a grant writing program. 

“Foundations invest in good work and want to see a track record and outcomes. Often, they do not want to know what you are going to do but what you can and have done in the past. Having the required documentation to demonstrate your expertise and impact is vital”

–– Carolyn Polakowski, President of Cay Communications

By researching the grants best suited to their organization, arts and culture nonprofits can focus their efforts on the funding opportunities with the highest likelihood of success. Once these grantmakers have been identified, organizations must work to prepare their financial records for their grant applications. 

Key Financial Documents to Prepare for Grant Applications

When a nonprofit organization applies for grant funding, it is typically required to include a range of financial documents in support of its application. Grantmakers favor funding nonprofit organizations with a sustainable financial base, and these documents are an invaluable indicator of that. 

Form 990

An arts and culture organization’s Form 990, Return of Organization Exempt from Income Tax, is far more than just an informational tax filing: it’s a platform for your nonprofit to convey its impact. Some funders may only require your organization’s most recent Form 990, whereas others might request multiple years of filings. 

Learn More: Form 990: Key Focus Areas to Present Well 

Audited Financial Statements

An organization’s audited financial statements are perhaps the most important financial documentation that they will submit with any grant application. It’s important to note that funders are specifically looking for financial statements attested to by a recognized accounting firm, not an internal report or a report generated from accounting software like QuickBooks. 

The majority of nonprofit organizations produce audited financial statements each year, but the cost of an audit can make that a challenge for smaller organizations. “Many funders will accept a compilation report or review if a nonprofit does not invest in a full audit”, notes Polakowski. It’s important to ensure there are no major discrepancies between the organization’s Form 990 and its audited financial statements, as sophisticated grantmakers will flag these. 

The financial statements that grantmakers expect to see may include the Statement of Financial Position, the Statement of Activities, the Statement of Functional Expenses, and the Statement of Cash Flows. 

Learn More: An Overview of Common Nonprofit Accounting Statements

Annual, Project, and Program Budgets

Creating a comprehensive budget that outlines the forecasted expenses and funding sources involved in a new program is an important prerequisite to applying for a grant. Not only does this help organizations better define their fundraising needs, but it’s also a required component of the grant application itself. 

Nonprofits should be prepared to submit an annual operating budget as well as specific project or program budgets for the activities the grant will support. These budgets should be well-organized, breaking expenses down into specific categories and highlighting the percentage of expenses assigned to Program, Administrative, and Fundraising activities. 

“A funder should be able to look over the annual budget and project budget and understand it immediately. They shouldn’t need to be intimately involved or employed at the organization to readily identify the meaning behind specific line items.”

–– Carolyn Polakowski, President of Cay Communications

Be prepared to answer any questions that grantmakers might have about your organization’s finances and forecasted budgets. “One of the biggest missteps I’ve seen is organizations not being ready to respond to funders if they ask questions. If there’s something unusual in your finances, be ready to explain why”, comments Queen. 

If you’re unsure of the required documentation you must submit in the application process, simply reach out and ask the grantmaker. Polakowski advises: “if you’re unclear on the wording of a question, call and ask for clarification. It could save your application from being thrown out at first glance!”

Smith + Howard: Experienced Advisors to Arts and Culture Nonprofit Organizations

Providing comprehensive financial information in grant applications is key to securing funding and ensuring the long-term sustainability of your arts and culture organization. This funding unlocks the ability to invest in valuable program activities, while also serving as a signal of your organization’s fiscal and operational maturity. 

At Smith + Howard, our accounting and tax professionals are available to assist with the production of audited financial statements and comprehensive Form 990 filings. Our firm has a decades-long track record of serving nonprofits across the nation, and our team is always eager to build new connections with leading organizations in the arts and culture space. 

To learn more about how Smith + Howard can support your arts and culture organization, contact an advisor today.