If your nonprofit depends on government grants — particularly federal government grants — you’re probably dealing with a lot of uncertainty right now. But even if funding for the next year (or longer) is in doubt, your organization has options. Several avenues may be available to replace lost revenue. Let’s take a look.
Big piece of the pie
According to the Urban Institute, government funding accounts for approximately one-third of the revenue flowing into the nonprofit sector. This includes state and local government grants that often are funded indirectly by the federal government.
In every state, 60% to 80% of nonprofits that receive government grants would be at risk of financial shortfall without this funding. A reduction or elimination of federal funding can easily threaten an organization’s survival.
Proactive steps
Taking specific steps can help mitigate the financial consequences associated with funding cuts. Management should, for example:
- Assess the risk. Don’t wait until you receive notice of a funding cut. Assess potential damage now to plan appropriately. If you suffered funding cuts or delays in early 2025, you may already know how further cuts would affect your budget and ability to pursue your nonprofit’s mission.
For a better handle on the situation, review upcoming expenses and liquid assets on hand to determine how many months of operating expenses you’d likely be able to cover. The shorter the period, the sooner you should act to line up other revenue sources or reduce spending (see “Cost cutting: The other side of the coin” below).
- Reach out to donors. As many did during the COVID-19 pandemic and the 2008 recession, some major donors may be willing to waive or at least relax restrictions on their gifts, allowing you to use the funds for operations and programming. To encourage the support of other donors, illustrate the outcomes made possible because of previous gifts and explain in concrete terms the impact of lost federal funding. For instance, show how many people will go without meals, job training or health care. Also, highlight the tax benefits of donating through a donor-advised fund or IRA charitable distribution.
- Pursue major gifts. For some organizations, the threshold for a major gift might be $1 million, but for many small nonprofits, $1,000 could be a sizable contribution. You can identify possible major gift sources by listing your top 50 to 100 active funders. Research them to determine if they have the wealth and philanthropic inclinations to make more significant gifts. Then, develop a compelling message that conveys the urgent need for substantial donations to your organization.
Ensure that appeals to these supporters are delivered personally, not via mail or email. Your executive director and board members might call or arrange to meet with those on your list. Even if individuals or grant makers don’t give immediately, nurturing such relationships can pay off down the road when they’re inclined to provide financial support.
- Encourage planned giving. It may seem like a luxury to devote limited resources to planned giving when facing near-term budget holes. However, 2025 is prime time to discuss the topic with Baby Boomers. The so-called Great Wealth Transfer, during which Boomers are expected to leave about $84 trillion by 2045, is already on.
If you secure planned giving agreements, you aren’t only boosting future financial support. Research published in the University of California Davis Law Review suggests that annual giving naturally increases when individuals incorporate a charitable component into their estate planning. It shouldn’t necessarily reduce current support, particularly if you have longtime donors with an emotional stake in your organization.
Time to get creative
Over the next several years, your nonprofit may need to become more creative to ensure it has sufficient financial resources. We can help you assess your current financial situation and suggest revenue-generating ideas.
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