Nonprofit leaders are accustomed to dealing with uncertainty around government funding. But this year, the stress feels different. The stakes are high, and the unknowns feel all-consuming.
What’s worse than uncertainty? Feeling like you have no control.
Here’s the good news you’ve been needing to hear all year: You’re not powerless. With a clear financial strategy and scenario planning, you can prepare for whatever funding changes come your way, without making fear-driven decisions that could hurt your mission in the years to come.
Our accounting experts have helped many nonprofits build financial resilience, so today, we’re sharing a simple, strategic framework you can use to plan for any financial scenario.
Step 1: Align Your Key Stakeholders
Before diving into the numbers, bring your board, leadership team, and any other key stakeholders together for a strategic conversation. Aligning on core financial principles will make scenario planning easier and more effective.
Key Questions to Answer:
- Where does our funding come from?
- Is it federally backed, state-funded, or pass-through grants?
- Example: If a major part of your funding is a pass-through grant, delays in distribution could cause cash flow issues
- What is the board’s risk tolerance?
- Define financial trigger points. What level of funding loss requires immediate action?
- For example, some nonprofits operate with 90 days of cash on hand, while others feel comfortable with 60 days. What’s your threshold?
- What are our current numbers?
- Review your total revenue vs. expenses to date
- Perform a programmatic P&L breakdown (If you don’t have this yet, we can help!)
- Identify unrestricted vs. restricted contributions
- What are our funding diversification strategies?
- Beyond government funding, how strong are our other revenue streams (corporate partnerships, private donations, earned revenue, etc.)?
- Consider how a food pantry that secures 30% of its budget through a monthly giving program is more resilient than one solely dependent on government contracts.How do financial decisions align with our mission?
- How do financial decisions align with our mission?
- Which programs are core to our mission and must be protected?
- If cuts become necessary, where can we scale back without compromising impact?
- For example, a healthcare nonprofit may choose to cut administrative expenses rather than reduce direct client services.
Tip: Schedule a leadership meeting this month to align on these principles before jumping into financial scenarios.
Step 2: Plan for Three Financial Scenarios
With a clear understanding of your nonprofit’s financial position, you’re ready to map out action plans for three potential scenarios.
1. Worst-Case Scenario: No Government Funding
Hopefully, this plan will collect dust in your online archives and you’ll never have to act on it. But if you lost all government funding tomorrow, you’d be able to handle it with this pre-made plan.
Here’s how to do it:
- Identify the financial impact
- Calculate your operating loss without these funds
- Review cash reserves and net assets to understand how long you can sustain operations
- Assess program costs and funding restrictions
- Use a programmatic P&L to determine which programs are most financially vulnerable (Remember, we can help you with this!)
- Review restricted vs. unrestricted funding—what flexibility do you have?
- Take strategic action steps
- Can you fast-track private fundraising efforts to fill the gap?
- Are there grants, corporate partnerships, or cost-sharing opportunities you haven’t explored?
- If cuts are necessary, how can you minimize disruption to your mission? (PS: here’s 3 ways to streamline your back office without burning out your team)
Tip: If you don’t have a programmatic P&L yet, let’s get that off your to-do list. We assist our clients with this, and it’s a game-changer for financial decision-making.
2. Mitigating Scenario: Partial Funding Cuts
If you receive less funding than you wanted this year–perhaps 30% to 50% less–how could you adjust? We recommend you:
- Identify at-risk grants and funding sources
- Which grants are vulnerable?
- What percentage of your funding do they represent?
- Make budget adjustments and act on cost-cutting strategies
- Where can spending be temporarily reduced without harming impact?
- Are there non-essential projects that can be postponed?
- Diversify your revenue
- Increase donor engagement with a monthly giving program (technology is a huge help here – here’s 5 tech trends you should know about)
- Strengthen corporate sponsorships and earned revenue opportunities
Tip: Review your current donor engagement plan. Are there opportunities to increase recurring donations to stabilize revenue?
3. Best-Case Scenario: Full or Increased Funding
Things may seem bleak, but what if you get the full funding you need or more? This is a scenario that can help you handle a happy and unexpected outcome:
- Ensure compliance with cost-reimbursement structures
- Government grants often require spending first, reimbursement later
- Plan cash flow carefully to avoid operational delays
- Strengthen your organization’s financial reserves
- Rather than spending extra funds immediately, build a reserve to prepare for future uncertainties (like this year)
- Consider strategic investments
- Can you invest in technology, staff training, or capacity-building to strengthen your nonprofit in the long term? Sage Intacct is our favorite platform for nonprofits (learn 5 reasons why we <3 Sage Intacct for nonprofits here!)
Tip: If extra funding comes in, prioritize reserves and long-term sustainability.
We’ve been helping nonprofit clients put these personalized plans together, and we’d be happy to map out these scenarios for your organization, too.
Next Steps: Build Long-Term Financial Resilience
Government funding uncertainty isn’t going away, but you don’t have to feel powerless. By taking a proactive, data-driven approach, your nonprofit can shift from reacting to uncertainty to controlling your financial future.
Do you need a strategic financial partner? Our accounting team specializes in nonprofit financial modeling, CFO advisory work, and cash flow analysis. We’re here to help you make confident, informed decisions, no matter what funding changes come your way!
