Every grant application involves financial scrutiny — funders need to know that applicants can manage grant funds responsibly, will remain financially viable during the grant period, and have appropriate financial governance in place. Understanding what funders look for in applicant finances helps organisations prepare stronger applications and demonstrate financial credibility.
Funders invest in organisations, not just projects. Even the best project proposal fails if the organisation:
- Has insufficient cash to bridge payment delays
- Lacks financial controls to prevent misuse of funds
- Is carrying debts that threaten its viability
- Has governance that doesn't provide financial oversight
Financial due diligence protects both funders (ensuring their investment achieves its purpose) and the organisations receiving grants (ensuring they aren't over-committed).
Audited or reviewed financial statements
Most funders with grants above a threshold (often $20,000–$50,000) require:
- Annual financial statements for the past 1-3 years
- Either audited statements (by a registered auditor) or reviewed statements (less rigorous)
- Balance sheet (assets, liabilities, equity)
- Income statement (revenue, expenses, surplus/deficit)
- Notes to accounts (key policies, major items explained)
Small charities without audited accounts may provide:
- GST returns as a financial record proxy
- Internal accounts prepared by a bookkeeper
- Treasurer's report for small incorporated societies
Current year budget
An operating budget for the current financial year — showing where the organisation's income is coming from and how it is being spent.
Project budget
A specific budget for the proposed project — what will the grant money fund, and what is the total project cost.
Bank statements
Some funders (particularly gaming trusts) request recent bank statements — a direct view of current cash position.
Current ratio (liquidity)
Current ratio = Current assets ÷ Current liabilities
Measures whether the organisation can pay its short-term obligations. A ratio of 1.0 means current assets exactly cover current liabilities. A ratio above 1.5 is generally comfortable; below 1.0 suggests cash flow risk.
Days of operating reserves
Operating reserves ÷ Average daily expenditure = Days of reserves
Measures how long the organisation could operate without new income. Many funders consider 3 months (approximately 90 days) to be a comfortable reserve level. Below 30 days indicates financial fragility.
Debt-to-equity ratio
Total liabilities ÷ Total equity = Leverage ratio
High leverage (significant debt relative to net assets) raises questions about financial sustainability.
Reliance on any single funder
If 80% of income comes from one funder, the organisation is highly vulnerable to that relationship changing. Funders prefer organisations with diversified income sources — demonstrating that the organisation won't collapse if any single funder exits.
Revenue concentration
Similarly, review whether income is stable (memberships, long-term contracts) or volatile (donations, project grants). High volatility requires higher reserves.
Why reserves matter
Operating reserves — unrestricted funds held for general operating purposes — serve as a financial buffer:
- Covering unexpected expenses
- Bridging gaps between grant disbursements and expenses
- Managing income variability
What level of reserves is appropriate
The appropriate reserve level depends on:
- Income volatility (higher volatility → higher reserves needed)
- Commitment exposure (staff on permanent contracts need reserves to fund them)
- Grant payment timing (organizations waiting months for grant payments need reserves)
Common guidance suggests 3-6 months of operating expenses as a target, though smaller community organisations may operate with less.
Restricted vs unrestricted reserves
Reserves held for a specific purpose (restricted — e.g., building maintenance) are not available for general operations. Funders want to see unrestricted reserve levels.
Grant assessors look for signs of weak financial governance:
No formal audit or review
Organisations above a size threshold without external financial review raise concerns about oversight.
Unresolved audit findings
If audited accounts include qualified opinions or significant audit findings, funders want to understand what happened and what's been done to address it.
Persistent deficits
Organisations running year-on-year operating deficits are burning reserves. A one-year deficit may be explained; persistent deficits signal a structural problem.
Significant related-party transactions
Transactions between the organisation and board members, staff, or associated entities without arm's-length process raise conflict of interest concerns.
Late filing of annual accounts
Late or missing annual returns to Charities Services (NZ), ACNC (Australia), or Companies Office signal disorganised governance.
Declining cash
Cash declining year-on-year, even alongside a technical surplus, can indicate problems (e.g., accrual-basis income not yet received in cash).
Narrative explanation
Don't just attach financial statements — explain what they show. If the previous year had an unusual deficit (COVID impact, one-off expense), explain it. If reserves are low, explain why and what your plan is. Provide context that the numbers alone can't give.
Show financial trajectory
3 years of trend data is more informative than one year. If the organisation is growing, show that growth trajectory. If reserves declined, show the plan to rebuild.
Demonstrate financial controls
Describe your financial governance:
- Who authorises expenditure
- How financial statements are reviewed (Finance Committee, board review)
- How conflict of interest in financial matters is managed
- Bank account signatories and approval thresholds
Budget realism
Project budgets should be realistic — not padded with contingencies, but not stripped back to look cheap either. Include overhead (administration, rent, utilities) at actual rates. Funders who have funded many projects know when a budget is unrealistically lean.
Organisations with weak financial management can take steps to strengthen before major grant applications:
- Engage a bookkeeper or financial manager
- Move to accounting software (Xero, MYOB, QuickBooks)
- Establish a Finance Committee with board-level oversight
- Commission a first-ever external review or audit
- Build operating reserves through fundraising or surplus
Some funders specifically provide capacity building grants for financial management strengthening — worth seeking if financial weakness is holding back your funding prospects.
Tahua's grants management platform supports funders with financial due diligence workflows — including financial health dashboards, ratio tracking, budget comparison tools, and the governance monitoring features that help grantmakers assess financial risk across their application portfolios.