How to avoid the most common pitfalls in your governmental grant management

01-04-2021

As a start up you are always busy in arranging funding for your start up, continuously aiming at multiple national and international grants. Suddenly you receive multiple messages from various grant providers almost at the same time, informing you that they have approved your application. That seems like a great step forward for your startup, but is it really?

By leveraging the right sources of governmental funding at the right time a venture can reap substantial benefits. Grants allow a growth-stage company to accelerate the R&D program, close in on the time-to-market and extend their runway. Indirectly, this also fuels private financing opportunities by reducing perceived risks for potential venture capital investors. Nevertheless, grant management can be a stressful task involving a lot of paperwork, deadlines and complicated processes. In this article we discuss some of the best practices to succeed in grant management and free up your focus on what is really important: fulfilling your organizations’ ambition.

1. Prepare for upcoming projects

This might sound like an obvious point, but more often than not we see ventures treating their grant applications as one-off efforts rather than taking a holistic approach to grant seeking. While a continuously pro-active attitude in non-dilutive fundraising is one of the most important factors in maximizing the value of government tax credits, grants, and loans. Here are some of the most important aspects in your approach:

  • Plan ahead: Most of the grant programs have strict application time frames and eligibility requirements, as well as limited funds. So staying up to date on new program announcements and keep a strict calendar on application deadlines is critical. When you are clear on funding initiatives and interests, you can consider applying for grants when you have a project that aligns with their mission.
  • Have a clear strategy: Grants do not drive the strategy; they support the business strategy. In other words: a grant project should contribute to the bigger picture of your organization. If this is something that’s missing, defining a corporate roadmap is a great place to start. Once you are clear on upcoming milestones, R&D activities, hiring schemes and revenue forecast it is easier to identify fundable activities.
  • Combine instruments: It is not uncommon for venture stage companies to deploy multiple instruments at the same time. Tax credits and governmental grants can be linked and leveraged in conjunction to meet specific objectives. Next to that, different instruments relate to the various stages of the company’s life cycle, from initial product development to international market expansion. However, there are legal boundaries to ‘stacking’ instruments which usually starts when double-invoicing costs under different programs (see also: #3)
  • Don’t waste time on unrelated grants: Although, it might be tempting to apply for every grant that has a slight connection to your organization, this should be prevented. Further discussed in the paragraph below.

2. Stay true to your plans

Finding a new source of cash income is always good for company moral. However, when applying for grants it is key to ensure that you stay true to your initial business plan. As with a lot of business decisions, grant management only succeeds if you keep your goals in mind. Often companies will mold themselves in order to fit the picture that grant issuers are looking for, with the risk of never able to go back to their original roadmap. Besides being a source of income – a grant project is also a serious obligation which absorbs a significant amount of a company’s resources.

3. Establish effective monitoring systems

A lot of blog posts and white papers on writing successful grant applications can be found on the internet. Information on the post-award stage is a lot more scarce however, while it is easy to argue that this is the most demanding part of grant lifecycle. Below some of the key points to be aware of once you and the funder have finalized the contract:

  • Progress = Payment: In order to obtain payments, most grant programs will require evidence on achieved milestones and incurred eligible expenses. The requirements per grant may differ although most of them involve providing invoices, proofs of payment, timesheets and progress updates by the grantee to receive installments.
  • Set-up accounting controls: Revenues and expenses for a grant should be tracked separately in the accounting system. This can be done by developing a separate cost center for the grant and have a range of line items in that cost center. This is a safeguard that keeps you from mingling grant funds with the company’s other activities (or even other grants) and also helps to easier assemble reports. Setting this up right from the start will benefit your adherence to the grants’ policies and procedures and also helps to be well-prepared for any audits.
  • Keep a close eye on staffing: On the basis of EU Horizon 2020 audits carried out the European Commission analyzed the types of errors in EU Horizon 2020 ex-post audits. Over 70% of the errors were linked to personnel costs. Since these costs are often a substantial part of the total budget, consequences of inaccuracy might significantly disadvantage both funder as beneficiary. Common errors can easily be prevented by keeping accurate, real-time records of staff work hours that relates to each grant.
  • Consequences can be serious: If errors are found during checks or audits, the consequences can be grave and include the rejection of costs, a reduction of grant amount and additional checks, or even a fraud investigation. Such dire consequences are best avoided by getting the financial management of grants right from the start.

4. Beware of stacking

In the continuous hunt for new funding sources the situation might arise that multiple governmental grants get approved covering a similar topic. While this is good news to begin with, almost every grant arrangement restricts ‘double’ financing of project expenses. Ignoring these regulations can easily lead to ex-post (claw-back) measures and is thus not recommended. However, early signaling project overlap before the commencement date of the program provides room to work out solutions. One of the solutions to think is to split-up different milestones and/or working packages as part of the larger project. After re-structuring the respective programs this will result in the situation where specific milestones are financed by one grant provider and successive milestones by another provider. Cases like this are always highly tailor-made, and it is advisable to discuss potential stacking openly and transparently with the grant providers. They are almost always cooperative in these cases, especially when involved timely.

5. Keep the granting organization involved

Finally, developing a strong and trusting relationship with the grant provider is a very valuable element in successful grant management. This applies especially for the more comprehensive multi-annual programs. Relationship building starts during the applications process: the ongoing communication with potential funders, discussing the proposal and managing a successful site visit. However, the period after the grant has been awarded is equally important. So make sure to keep the granting organization in the loop throughout the project about your progress and results. Clear communication with grantors will help you avoid misunderstandings and will make difficult conversations down the line easier to swallow for both parties.

Professionally executing your grant management can consume a lot of time and resources. Plus the fact that experience with these matters built over time. Your subsidy advisor who helped you with the initial application should be able to support you in these activities. Specialized finance boutiques who have in depth knowledge of your financial status can be utilized for setting up a cohesive reporting and monitoring system.

This is part of an ongoing blog series about early stage finance and fundraising. If you’re interested to be first informed on our next posts you can click on this link.

 

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