Widely Adopted Financial Management Practices Under Pressure? State Grant Allocations to Nonprofits in Minnesota

ABSTRACT Nonprofits are commonly advised to minimize overhead, maintain fiscal leanness, diversify revenue streams, and avoid debt. The problem is that adhering to these financial management practices may not always result in positive outcomes; instead, it may lead to unforeseen consequences. Using a unique dataset that consists of 938 organizations from Minnesota, this study examines whether nonprofits adopting the four widely implemented financial management practices are associated with securing larger grant amounts and/or a greater number of government grants. Our analysis results indicate that maintaining fiscal leanness is associated with receiving a greater number of state government grants, and diversifying revenue streams can attract larger amounts of state government funding. However, efforts to minimize overhead and/or avoid debt do not consistently yield comparable funding advantages. Government responses to these financial management practices appear more complex than previously assumed. Our findings have important implications for nonprofit financial management and for government funding decisions.