You can go bankrupt even if you have project money if you make a mistake with how you spend your money.
Spending outside the project budget
For instance, if you are spending money on services and goods that are not part of the budget. Or if you are overspending without prior approval for budget changes making that possible.
These expenses will not be covered by the funder. You can pay for them with money you have received from the donor. But when you report to your donor with these expenses included, they will reject these expenses. And consider the money as unspent. That means, you’ll have to pay it back to them.
Spending within the project budget
Your donor can also reject expenses you’ve incurred that are perfectly within the budget.
Maybe you’ve not followed some donor conditions. Like, checking if an expert is listed on one of the international terrorist lists, before you contract them. You may be sure they’re not a terrorist, but if your donor requires a check – you need to check. Or perhaps you’ve not followed procurement rules: you’ve not requested three offers before contracting. Maybe you’ve not included a sentence about the funding in your publication – as the donor requested you to do. There are loads of conditions that we sometimes overlook or take lightly.
Again, you may use the money in your bank account to pay for these expenses. And that can be money from your donor. But if you report the costs and they check your documentation, they will see you missed some steps. And they may reject these expenses. As a result, you’ll be expected to return that money or to spend it properly.
Spending within all conditions
Finally, your donor can reject expenses if they cannot get sufficient confirmation about them. If you cannot provide all necessary documentation to show the expenses are real, and for the project. And in line with requirements.
For instance, did you take a readable screenshot of your terrorist check with the date showing and being before you signed the contract? Do you have proof of the existence of all the services and goods you purchased? Can you prove that you paid? Did you pay the right person, on the bank account indicated in the invoice? Can you show timesheets for time spent on the project? Etc.
It is sometimes amazing how many documents you need to properly prove that the expense is correct and related to the project. But if you don’t have it all in place, your expenses may be considered ineligible. And your donor may decide not to cover them. And yes, then you’ll need to pay that back.
A project grant uplevels your challenges manifold
Getting a grant is a good moment to look at your processes. And to do a risk assessment. Which of your donor’s requirements could be a challenge for you? How can you solve them?
Sometimes you may need to refuse a grant. Or even decide to not apply, if you know upfront that this donor has standards you cannot yet meet (or don’t want to meet).
My tip is to make sure you get funding from different sources:
- Project funding from different types of donors. (Grants).
- Income that’s not grants but for specific activities. (This is earmarked money!)
- Income that’s not for any specific activity (Unearmarked).
With unearmarked income you can repair any mistakes you make in your first project grants. (Before your systems help you avoid them). And you can use it for all the things grants and donations and sponsorships don’t support. (Like very often – learning. For instance about finance management).
How I can help
Learn how to get unearmarked income in my workshop 7 ways to generate unearmarked income for your nonprofit.
If you would like simple steps to set up and organise your finance & admin foundations guidance by me, you can get a bundle of six simple and short workshops here: https://www.changingtides.eu/financeandadminbundle
If the bundle is too much for you at this moment, feel free to pick one or more of the workshops individually:
- Set up your financial processes: https://www.changingtides.eu/financialprocesses
- Understand important basics of bookkeeping for nonprofits: https://www.changingtides.eu/bookkeepingfoundations
- Be sure you are keeping all the documents you need for project donors, auditors, or officials: https://www.changingtides.eu/documentationfornonprofits
- Plan your cash flow for a year: https://www.changingtides.eu/cashflowfornonprofits
- Get a feel for how time sheets can be helpful to everyone in your nonprofit and set them up straightaway: https://www.changingtides.eu/timesheetsfornonprofits
- Learn how to calculate the price of time spent of your team members, including allocations for general costs that are used in different projects: https://www.changingtides.eu/feesfornonprofits
Want to know more and ask questions?
If you want to discuss this more and maybe share your stories for feedback – jump into my nonprofit support community and get input from a wide range of peers and from myself!
Here is how you can join my free nonprofit support community
You can join my free nonprofit support community on the Heartbeat platform here. This group is a safe space for open exchange and discussion on potentially sensitive topics like boards, nonprofit management, fundraising, etc.
You can visit the community via a browser or via an app. Here is the link to download the Heartbeat chat app in the Google Play store.
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