What's the Secret to Responsive Grantmaking?

Tuesday, January 28, 2020

What's the Secret to Responsive Grantmaking?
By James Hirschfeld, Program Officer, Howard Gilman Foundation

At the risk of sounding so uncool, it’s always been a guilty pleasure of mine to log onto Guidestar and read through 990s—the federal tax form that all 501(c)(3)s are required to file each year. I suppose I feel guilty because it makes me feel like such a snoop, prying into an organization’s most sensitive and personal information:

How much money did the organization earn (or lose) this year? 

How well did they do at their gala last year?

How much money does their Executive Director make?

As funders, we have many ways of understanding any given nonprofit organization: we can meet with leadership, attend events, and conduct independent research. But as a “numbers” person, reading financial statements has always been one of my favorite ways of understanding a nonprofit. And although financial statements don’t even begin to tell the entire story of an organization, they often tell an important story, so it’s critical for funders to be able to competently read them and interpret the information in the right way.

Our mission at the Howard Gilman Foundation is to support the performing arts in New York City. Among our 200 grantees, we know that the median organization has less than 2 months of working capital in reserve. This gloomy reality cuts across organizations of all budget sizes within our grantee pool (which ranges from $250K to over $100M). While some foundations might not look too kindly on organizations with debt or deficits, we know that some of the most consequential art is often being created and performed at organizations facing financial challenges. If the Howard Gilman Foundation only funded organizations with strong financials, we would miss out on countless opportunities to make a difference in the lives of the people we hope to serve. 

Instead, we view financial statements as one way of identifying opportunities for impactful grants. While the vast majority of Howard Gilman Foundation grantmaking goes toward general operating support, we regularly provide different types of capitalization support, and these latter grants are almost always made in addition to the former.

For example, in response to the widespread lack of working capital reserves, the Howard Gilman Foundation has focused much of its grantmaking on helping our grantees grow their reserves. Over the last 3 years, we have increased the number of our grantees with 3+ months of working capital by over 30%. There is still considerable work for us to do, but we also know that this work must not stop.  An organization’s access to cash allows it to take risks on the type of art that might not sell a lot of tickets, but could revolutionize an art form or advance an important conversation.

We also know that many performing arts organizations carry debt, which can prevent them from investing in new work and hold them back from other funding opportunities. Their lenders are often founders, executive directors, board members, or even family and friends. One simple but impactful thing we do at Gilman is to provide grants for debt reduction so that organizations can erase that debt from next year’s balance sheet. This often makes them more attractive to other funders, but just as important, it removes the enormous burden on the executive director, who has likely been losing sleep over their organization’s debt for years.

Philanthropy New York’s very popular professional development Financial Series begins on February 27th. This series helps funders understand how to assess organizational health through financial analysis. Members will have the opportunity to analyze and evaluate grantee IRS Form 990’s and financial statements, engage with peers about best practices, and dive into additional topics.

So next time you log on to Guidestar and read through a prospective grantee’s 990, remember that our job as funders is not to grade folks on their ability to generate annual surpluses, but rather to help sustain the important work of organizations that we believe have the ability to change the world.