Across the country, purpose-driven organizations face mounting uncertainty in the current political and social climate. Potential changes in federal funding, shifting regulations, and the impact of new policies require organizations to assess their financial strategies and risk management practices. In the face of these headwinds, strategic financial planning is more important than ever to help organizations navigate choppy and unpredictable waters.
1. Financial Forecasting: Navigating Funding Uncertainty
In today’s rapidly changing landscape, one of the questions keeping social sector leaders up at night is “what will happen to my funding and how should I adapt?”. For nonprofit organizations who receive Federal funding, shifts in priorities and department cuts have upended what was historically one of the most stable funding streams. But even for those who do not receive Federal funds, hazards remain: some corporate and institutional funders are shifting priorities in response to increased need in other areas or perceived political risk. For nonprofits working in politically charged issue areas there is a fear of “debanking” — when a financial institution terminates transaction processing due to perceived financial, regulatory, reputational or legal risk.
Though it’s impossible to predict the exact impact of changing policies and economic trends, scenario planning can help you understand how different funding shifts might affect your operations. By analyzing various funding scenarios, you can make more informed, strategic decisions that help you navigate quickly-changing circumstances.
Planning Tip: Assess your funding mix and consider the risk levels across different sources:
| Funding Source | Risk Level | Details |
| Federal Funding | High | Subject to political shifts and budget cuts. |
| Corporate Funding | Moderate | Influenced by changes in corporate priorities and economic pressures |
| Individuals | Moderate | More independent from political swings but vulnerable to economic conditions. |
| Foundations | Moderate – Low | Most insulated from political swings and economic conditions, but can be impacted by shifting needs and strategies. |
Creating a few different budget scenarios that are predicated on likelihood of existing funding streams contracting can give you eyesight into what shifts you may need to make internally around programs, staffing, services, and operations, and gives you data that you can use to discuss with your Board and funders when asking for support or making big decisions.
2. Risk Management: Anticipating and Responding
In times of financial uncertainty, proactivity is key to managing risk. A risk management analysis helps identify potential vulnerabilities and outlines strategies to minimize these risks. This could look like ensuring adequate insurance coverage, or creating contingency plans (such as an emergency cash fund) in case of a sudden loss of funding. If you live in a disaster-prone area this may look like having an emergency response plan. If you deal with sensitive client information this may involve ensuring that it is not at risk of being shared with authorities in a way that would risk your clients’ privacy. This free template from Nonprofit Hub can be used to catalog your various data sources and assess risks in terms of data breaches or confidentiality.
Planning Tip: Conduct a risk assessment to identify the organizational pressure points. Review your insurance policies, especially related to business interruption, and ensure you have a clear emergency response plan for financial and operational disruptions. If possible, establish a contingency cash fund to address any funding shortfalls.
Ideally you will not need to use these response plans, but as they say “Prepare for the worst, hope for the best.”
3. Diversifying Revenue Streams: Reducing Reliance on At-Risk Funding
As has been made clear over the last several weeks, over-reliance on government grants and federal funding can make organizations vulnerable to shifting political winds. A nonprofit that relies too heavily on one source of funding risks facing severe disruptions if those funds dry up. Diversification is critical. Building up income from a variety of sources – including individual donations, corporate sponsorships, and earned income opportunities (e.g., ticket sales for events or fee-for-service programs) can provide a buffer for organizations when grant funding is unpredictable or unavailable.
Financial Planning Tip: Take steps to create a more diversified revenue model, but remember that building new revenue streams takes time and consideration. Rather than trying to do everything at once, start with small experiments to test the waters. For example, explore opportunities to expand your donor base, partner with local businesses, or develop an earned revenue strategy. Not all of these approaches will be the right fit for your organization, but experimenting with a few carefully selected options can help you identify new revenue streams that align with your mission and capacity.
Brand new funding streams will not cover an immediate budget shortfall, as cultivating these relationships or capacities takes time. Think about how your existing competencies or relationships can be used to cover budget gaps, while also thinking long-term about new opportunities.
4. Advocacy and Staying Informed: Fighting for Your Funding
For organizations relying on government support for their community-focused initiatives, advocacy is an important tool for navigating uncertainty. Staying informed about potential legislative changes and advocating for your funding sources can help mitigate the risk of losing crucial financial support. The fights over Federal funding are going to play out in the courts, but much is up in the air about whether state and local governments will adopt similar policy changes. This may look like joining an existing coalition, or collaborating with a new set of partners to launch an advocacy campaign.
Planning Tip: Be mindful of your organization’s tax status, and particularly if you are a public charity or 501(c)(3). While advocacy is important, it’s essential to understand what is permissible given your tax status. Focus on coalition-building and advocacy efforts that align with your capacity and legal parameters. The more informed and strategically involved you are, the better positioned you’ll be to address potential funding cuts.
You don’t need to fight every battle, but many individuals are looking to the social sector to help guide their own activism. Stay informed about local, state and national politics through coalitions that you are part of and identify which areas you might want to prioritize for mission-aligned advocacy.
Conclusion: Preparing for the Unpredictable
Purpose-driven organizations face an uncertain future, marked by shifting federal policies, funding cuts, and political instability. However, with proactive financial planning, diversification of funding, and a strong risk management strategy, nonprofits can navigate this uncertainty with confidence.
By forecasting various scenarios, building cash reserves, diversifying revenue streams, and advocating for your sector, your organization can weather the storm and continue to serve your community—no matter what comes next.
If you want to learn more about how to use planning to navigate uncertain environments, Trepwise can help. Let’s start the conversation.
