Building Your Financial Assessment Skills to Better Support Nonprofit Partners

To transform the practice of philanthropy into the practice of principled grantmaking, and in line with PEAK’s Steward Responsively Principle, we call on grantmakers to reframe risk and to recalibrate their vetting process to make it more transparent, more trust-based, more nonprofit-and community-centered, and less burdensome. PEAK’s members have long had an interest in learning about how to assess the financial health of nonprofit organizations, which is why we are excited to invite our member community to an information session about a new service-learning pilot program on July 18.  

Although the responsibility of financial health assessment often lies with foundations’ program staff, there are organizations where that assessment falls to members of the grants management team. Regardless of who is primarily responsible, developing a strong partnership between the programs and grants management functions leads to a more holistic approach to financial review that better supports nonprofit partners.  

In addition to the desire to strengthen the financial review process across the sector, PEAK seeks to empower our members in elevating their voices as change agents to influence shifts in grantmaking practices. Developing skills in financial assessment is but one way to establish grants management professionals as strategic decision-makers within their organizations. This opens them up to a wider range of career advancement opportunities.

Generally, staff at grantmaking organizations enter the field with an interest in a funder’s mission or the impact that organization has helped to realize, and not because they are passionate about nonprofit finance. This can result in staff feeling intimidated by audits, Forms 990, profit and loss statements, and budgets. However, as staff transition into grants management and programmatic roles within philanthropy, they soon realize how important it is to know how to assess the financial health of a current or potential grantee. A financial assessment can lead to structuring a grant differently or offering capacity building to strengthen the financial viability of grantees.

But a common barrier to realizing those benefits is how funders have historically associated financial health assessments with risk to themselves. That funder-centric risk framing ignores the unique contexts in which nonprofits operate. It can also negatively affect nonprofits, grantees, and the communities being served. Foundations often use the financial health of grantees as a key criterion for which applicants move forward in the process, and at times decline grant applications due to concerns with the nonprofit’s financials—and those concerns are usually not discussed with applicants.  

As grantmakers engage and interact with nonprofits, they should seek to be as transparent as possible regarding expectations, decision-making, and the data or information used to make decisions. Using the information learned through the financial assessment review process to engage in a dialogue with a nonprofit about their financial health supports the development of a relationship between a funder and an organization—an essential element of trust-based philanthropy. Being mindful of the power dynamics and setting the container for the conversation to support the organization can leverage shared nonprofit and grantmaker learning and help to build that trust.  

New service-learning pilot program

Through this pilot program, BDO’s Nonprofit & Grantmaker practice will train 20 PEAK members to review and analyze the information found in IRS Form 990 filings and to hold open and respectful conversations with nonprofits. As an extension of our connection to Baltimore via PEAK2023, participants in this pilot will then be matched with Baltimore-based nonprofits that are interested in an opportunity to engage with a funder to understand how foundations assess financial health and what they learn when they review financial documents. This opportunity supports shared learning in an environment where the funder and nonprofit do not have an existing funding relationship to lower the barriers that exist due to heightened power dynamics when a nonprofit is seeking a grant from a funder.  

This program recognizes that PEAK’s members stand at a critical nexus point within philanthropic institutions, poised to lead change within their organizations and for the broader field. We look forward to sharing more information about this exciting pilot program with you on July 18.