Navigating a Government Shutdown When Your Organization Receives Federal Funds

As a nonprofit finance professional, have you added “navigating uncertainty” to your resume yet?

The U.S. government shut down on October 1 limiting services to only essential functions. Unlike earlier this year when government grants were canceled, funds are likely to be restored to organizations receiving federal funding. However, navigating funding delays requires some planning and analysis.

What Does a Government Shutdown Mean for Your Organization?

If your organization receives federal funds, a government shutdown means you may face immediate delays in grant payments and disruptions to federally funded programs. Federal agencies halt all non-essential spending, which can delay payouts and force you to pause or rethink services dependent on federal resources. Be sure to review your grant agreement for guidance on how to proceed during a government shutdown.

Even if you don’t receive federal funding directly, ripple effects such as increased demand for your services and logistical challenges could occur. For example, members of your community may rely on programs that are paused during a shutdown forcing them to look to local nonprofits for additional support. Reviewing your programs for federal dependencies, even when not readily apparent, ensures you can anticipate and respond quickly to community needs.

Understand and Manage Your Cash Flow—Start Now

The first step is to run cash flow forecasts and budget scenarios to pinpoint where and when funding gaps could occur. By identifying these gaps in advance, you can make informed decisions about which expenses to prioritize and how to allocate your resources. For instance, if your organization expects a grant payout in October and is facing a delay, forecasting for this delay helps you plan for alternative funding or expense reduction.

Review your operating reserve policy so you know what funds are available and the procedures for accessing them. If your reserves are limited, determine how long you can sustain essential operations and which services may need to be paused. This clarity enables faster, confident decision-making during uncertainty.

Find Funding Options to Fill Gaps

File drawdown requests for federal grants as soon as possible, since processing will be delayed during and after a shutdown. Assess your operating reserves and calculate how much you need to cover short-term gaps. If reserves are insufficient, explore bridge financing options like lines of credit, factoring in interest rates and repayment terms.

Consider launching a targeted fundraising campaign to mobilize support from donors. Collaborate with your development and marketing teams to quickly communicate funding needs. Generative AI can be helpful in assisting you to quickly develop donor communications, just be sure to follow any organizational AI guidelines. If you are new to fundraising because your organization is primarily grant funded, ask your board to tap into their networks to shore up short-term funding gaps.

Make Operational Adjustments and Plan for Recovery

Identify programs or services that may need to pause due to funding interruptions or closing of federal services. Create a timeline for potential reductions in hours, program cancellations, or staff furloughs. Running scenario analyses will help you determine trigger points for these decisions, ensuring you act proactively rather than reactively and can communicate those trigger points to your staff and affected program participants.

Develop a plan to replenish your operating reserves once funding resumes. This may include allocating future grants or fundraising proceeds to restore reserves used during the shutdown, supporting your organization’s long-term financial health.

Communicate Proactively with Stakeholders

Keep your board, staff, community stakeholders, and Congressional representatives informed about how the shutdown affects your organization and the steps you’re taking to manage disruptions. Be transparent with staff about funding gaps and your plans to address them, including any program pauses or furloughs that may be required.

Address morale and retention risks by reassuring your team that, unlike grant cancellations, delayed federal funds should eventually arrive. Transparency builds trust and can lead to higher retention and faster recovery once funding resumes.

Building Resilience for Future Uncertainty

Government shutdowns test your organization’s agility and financial planning, but each challenge builds your team’s expertise in navigating uncertainty. By acting now—forecasting cash flow, securing bridge funding, and communicating transparently—you ensure your organization remains resilient, no matter how long the disruption lasts.

For further guidance on strengthening your financial sustainability, download our white paper, Future-Proofing Your Organization’s Finances: Proactive Steps to Ensure Stability and Growth.