The article is from the Nonprofit Financial Commons, written by Steve Zimmerman and Ruth McCambridge.
For nonprofit leaders, 2025 started with a bang, featuring first a set of executive orders that targeted a specific set of issues and organizations but progressed quickly to a general order from the Office of Budget and Management (OMB), placing a freeze on all federal grants. This last directive, which occurred on January 27, was immediately stayed by a DC circuit court judge in response to lawsuits filed by NCN and others, and while that legal fight goes on, particular fields of nonprofits, like international aid organizations, are still being subjected to a wide array of more immediate cuts and threats.
Many nonprofits, of course, did what they always do in such situations — laying quick groundwork to explore the full range of their possible choices for delivering on mission even when it appeared that a good part of their funding bases might be disrupted and maybe even eliminated virtually overnight.
This article is intended to help nonprofit organizations take on the first phase of what is likely to be an extended period of financial uncertainty. It is structured as an action checklist designed to build your organization’s agility under turbulent conditions. The first part focuses on the importance of building your ongoing access to unrestricted and liquid dollars, while the second part is about using our network and advocacy to protect ourselves, other nonprofit organizations in our community, and the people being politically targeted by these actions.
The Twelve Steps
1. Check and monitor your cash flow and liquidity.
How much time do you have before needing to reorganize, if that is required? Disruption, whether caused by economic, regulatory, or political forces, is often first felt in cash flow. Understanding the organization’s cash position will help leadership determine the urgency of their response.
To assess financial health, calculate the organization’s reserves using this formula:
(Net Assets Without Donor Restriction – Fixed Assets) ÷ Typical Month’s Expenses
This ratio, commonly referred to as LUNA, or Liquid Unrestricted Net Assets, indicates how many months of operating expenses the organization has if no additional income were received. The higher the number, the more time leadership has to make strategic decisions.
2. Bill paying: Begin to identify the timing of and need for expenditures.
Identify any possible expenditures that can be put off. These include, but are not limited to, capital expenditures the organization was going to undertake. However, whatever you do, DO NOT stop paying payroll taxes. Manage payables carefully, taking advantage of the full time the organization has to pay expenses.
3. Inventory all contracts, along with their associated risks and requirements.
Leadership should inventory all contracts to see how much latitude for renegotiation exists in them. Contracts should include funding agreements, as well as any contracts for services the organization may have. Knowing when grants or revenue contracts are up for renewal is essential to understanding when risk may be higher. Likewise, understanding cancellation terms on contracts is important to know where levers might exist for reducing costs.
4. Be realistic and active on all elements of cash flow projections and management.
If you have suffered from late payments on government contracts, it might be safest to assume that the problem may worsen in the near future. Take the time to make sure that you have a realistic cash flow projection updated and ready to be used by staff and board.
5. Address any external barriers to the use of cash.
Consider your banking relationship and any precarity in your line(s) of credit with an eye to retaining access to that debt. This is a great place to engage board members in the discussion and utilize any relationships they may have with your bank. Get involved with advocacy coalitions to ease issues with late payments and related problems wherever possible.
6. Address any internal barriers to the use of cash.
Check board-imposed requirements regarding the use of reserves (and possibly some types of endowments) both for cash flow and replacement of at-risk operating funds. Begin a conversation at the governance level to lay the groundwork for this possibility.
7. Measure the risks in existing revenue mix.
To understand financial risk, analyze revenue sources. Determine the percentage of total revenue that comes from government contracts, individuals, foundations, and other sources. Then, assess concentration within each category. For example, if the organization receives 30% of its revenue from foundations, but 95% is from a single funder, the organization is highly vulnerable. This information provides context for understanding the implications of potential funding changes.
8. Refresh all local and field networks so you are looped in on all the information related to changes in revenue streams and regulatory schemes as soon as possible.
Things are changing quickly. Even if you don’t have federal funding, state and local funding may come from the federal government and be impacted by these changes. Additionally, as the changes flow through the economy, there may be an affect on individual donations or fee-for-service programs. Stay aware of the latest happenings by connecting to your local networks to listen and learn about the environment from others.
9. Push funders to increase liquidity, ease transaction requirements, and increase revenue dollars overall.
During the pandemic, many foundations relaxed their restrictions on funding, even in existing grants. Approach local foundation funders to ask them to:
- Remove any restrictions on grants already made or under consideration
- Begin to consider the need to give at a higher rate than usual — and potentially out of their endowments
- Make loan monies available to affected groups when the problem is not revenue but cash flow
One of the problems in this situation is that nonprofits that are highly dependent on government grants tend to have less unrestricted funds proportionate to overall operating costs, and those funds may already be tied up in the cash flow needed to cover late payments and operating costs not covered by government contracts. This means the very nonprofits that would be most affected by potential federal freezes, cuts, and terminations are likely to be those with the least flexibility. These organizations are anchor agencies in our communities that address basic needs such as health care, housing, early childhood education, and refugee settlement. They may need to access funds from places they may not have previously connected with. Make introductions to other organizations and approach funders collectively to address this community challenge.
10. Communicate, communicate, communicate.
While the intensity of a crisis may fluctuate, the importance of clear communication on strategies and the potential role of stakeholders in carrying those out remains constant. The current uncertainty has created anxiety among leadership, board members, staff, volunteers, and constituents. Transparency, built trust, and acknowledgment of the personal stresses caused by this situation are all key.
Avoid making promises you cannot keep. Rather than guaranteeing programs will remain open, commit to inviting participation in finding the way forward while sharing what you do know, acknowledging what you do not know, and providing regular updates — even when there is no new information. Consider increasing the frequency of communications with key stakeholders and staff so they are informed and know the latest information. Establishing a predictable communication routine reduces anxiety and builds trust.
11. Build and deploy social capital.
In moments of crisis, nonprofits will generally find they can benefit greatly from engaging their human and social capital wisely. This realm of currency exists in your staff, networks, and program participants, and you will find it can often eventually be converted to dollars and cents, though it is enormously valuable on its own.
Empower the people closest to an organization — board members, staff, donors, volunteers, community members, and constituents — to spread the word. Encourage them to speak with friends, neighbors, elected officials, and other stakeholders about the organization’s impact and financial needs.
When doing strategy, we often ask the question, “If we went away today, who would it matter to and why?” Unfortunately, this is no longer a hypothetical question for many organizations. Use this question to articulate both the impact the organization has on direct program beneficiaries as well as the broader community impact strengthens advocacy efforts. Then, share this information with your friends and partners to amplify the organization’s story. Too often, nonprofit organizations are so busy delivering services that they neglect to advocate for their own survival. Now, more than ever, they must share their stories effectively.
12. Support other organizations.
In this precarious time, remember that you are not alone. Nonprofit organizations must work together to support each other and find solutions. Reach out to other organizations to understand their needs, how you might help them, and how they might help you. This collaboration to protect the most vulnerable in our communities is central to our identity.
Read the article on the Nonprofit Financial Commons website
