Planning for Uncertainty: What Federally Funded Organizations Can Do Now and Be Prepared for Next

Federal funding is a critical source of revenue for many nonprofits, healthcare foundations, higher education institutions, and other organizations. Changes in federal policies and priorities can create significant uncertainty for your organization.

Due to the policy updates, you are probably looking for strategies to navigate the changes but may not know where to start. This blog post provides an action plan for approaching the uncertainty around federal funding and offers practical steps and detailed guidance. 

Step 1: Assess Your Grants to Protect Existing Grant Funding

If you are like many organizations with federal funding, you are in crisis management mode. This is the time to assess your current grants, review your grant reporting, and confirm your internal controls to make sure you don’t give the federal agencies any justification to remove funding.

Why is this important

When you are crystal clear on the status of your current grants, you can more accurately understand where your risks are and better forecast challenges. Expect there to be changes that may affect your funding, but the nonprofit sector has already proven that outcry and pushback can lead to positive outcomes.

How to do it

• Assess your grant or contract language to identify which programs could be impacted by the changes in federal funding. For each grant, estimate how much of the total grant or contract might be affected, and work with your program staff to document the impact on programs and services.
• Understand the terms of your awards and any termination clauses. Ensure your programs comply with all reporting obligations—go over every criterion to verify your reports mirror the grant requirements exactly. This also includes your policies. Review your internal controls to make sure they align with Uniform Guidance.
• Optimize grant drawdowns. Understand what drawdown method is currently in place for your grant awards and how much is currently in your account associated with each award. Be clear on what has been obligated, what has been expended, and what is still unobligated. Uniform Guidance states that you can request funding in advance of cash needs so request as much funding as you can accurately account for with future expenses. The requests may not be approved but do what you can to get any funds already awarded that have not been paid out.
• Provide detailed grant impact data to your funding agencies. Be in regular contact with your agency representatives to make sure they are aware of the work you are doing and how you comply with the grant’s requirements. If you are a subrecipient, be in close contact with the pass-through organization to understand the timing. Regular contact can also help you know quickly if your agency representative is no longer there, and you need to find another contact.
• Contact your lawmakers with the information you’ve gathered and showcase the value of your programs. Show them how the changes to the funding structures will affect their constituents. Investigate the possibility of joining any class-action lawsuits that might arise.

Step 2: Prepare to Manage Liquidity Challenges

There will be some federal funding that will not be renewed, so be prepared with a data-driven plan on how to address liquidity challenges both short-term and long-term. This includes understanding how this will affect your budget in the short term and any cost containment actions that need to be addressed in the short and long term.

Why is this important

There is a chance that even if your funding is approved, there could be a delay while the agencies review all outstanding obligations. By doing as much as you can to get in front of the cash-flow implications, you mitigate how much it will affect your long-term strategy.

How to do it

• Understand your cash management by running or reviewing your monthly reports and knowing your burn rates. Analyze your operating reserves and operating reserve policy to think through what can be used for short-term operations and gap funding.
• Run budget scenarios to understand your short and long-term gaps based on the timing of changes and potential for new funding. Once you know what your needs are, explore short-term funding strategies, such as loans, lines of credit, or additional board support.
• Review your entire accounts receivable and payable to find opportunities to lower costs and streamline processes.
  • Secure purchasing and expense approval processes so there are no surprise invoices.
  • Optimize bill-pay and automation strategies to make sure income is processed quickly and expenses are reviewed and approved intentionally.
  • Work with your fundraising team to bring in outstanding pledges.
  • Negotiate with vendors for a better rate. Verify you are receiving the nonprofit discount for any vendor that offers it.
  • Where applicable, institute or review spending limits for purchase types. Consider using purchase cards if you don’t already have them to get immediate information on what’s spent and to have the ability to set limits per card holder. Incorporate AP automation and digital payments to reduce the costs of paper checks.
• Document everything. You will still be audited for this period, so make sure you update your internal controls and processes to reflect staff changes, program shifts, and process updates because of the funding changes.
• If your federal funding is terminated, consider getting assistance from a grant attorney or grant policy expert, especially if the termination notice is due to lack of compliance with grant requirements. There is a lot of ambiguity around the changes, so engaging with legal counsel can help you get clarity on your options.

Step 3: Inform Stakeholders and Drive Support

To navigate the changes to federal funding, you need to understand what’s happening and how it will affect your organization.

Why this is important

Regardless of how changes roll out and how they will affect your organization, understanding what is happening—as best you can—is crucial. Federal funding may only constitute a portion of your funding, but it could impact other organizations in your community more significantly, driving higher demand for your services.

Keeping your constituency informed through frequent updates can also make it easier to ask for additional funding should you need it. The updates can be as basic as, “We’re closely watching the news cycle and will let our community know as soon as we understand the impact.”

How to do it

• Stay up to date on policy updates. Find good resources, such as the National Council of Nonprofits, to help you understand what is happening and how it affects your organization. Consider following people such as Rachel Werner of RBW Strategy, Allison Boyd of Boyd Grants, Matthew Hanson of Witt O’Brien’s, and MyFedTrainer.com.
• Understand which programs could be exposed to potential funding changes. While there is still significant uncertainty around what the changes will look like, any initiatives focused on the target areas—DEI, LGBTQIA, green initiatives, foreign aid, immigration or refugee-focused programs, and women’s health—could see a reduction or termination of federal funding.
• Create clear outcomes reporting on those programs. Highlight who they serve, how many people they reach, and the impact over time. Draw a direct line to the community and your mission.
• Mobilize your stakeholders. Share information with donors and key community members about what’s happening, the impact on your programs, and encourage them to reach out to your elected officials about how the funding changes will affect your community. Work with your communications team to develop a prepared messaging framework and talking points to help everyone focus on the facts.

Step 4: Adapt Operations for Funding Availability

It’s imperative that you spend some time tightening operations and expanding your funding options. Once you understand the larger picture, you have the data to more clearly make the difficult decisions required to maintain operations.

Why is this important

If you were heavily reliant on the federal government for your funding, there is no amount of revenue diversification that will keep your operations completely unscathed. Get the information you need so you know what hard conversations you need to have.

How to do it

• Analyze your cost-to-impact program reporting. Dig into your fund accounting and CRM software to pull reports on which programs are driving the most impact and providing the most return on mission.
• Identify significant contractual commitments. Is there any flexibility in the obligations, timing, or deliverability? Can any be canceled? Review organizational capacity assumptions. Are there open positions that can be filled by volunteers in the short term?
• Prepare performance data for board evaluation. Make sure everyone has access to the current budget and the budget scenarios you’ve created. Include revenue-wise recommendations based on mission, staffing, and other funding opportunities for programs that may require more support, and which programs need to be pulled back.
• Update forecasts and budgets to reflect the decisions so everyone is clear on the path forward.

Step 5: Engage Alternative Funding Sources

Revenue diversity may not make up for all the lost federal funding but mitigate as much of your potential funding gap as possible by securing alternative funding sources. Even if you have funding from a variety of sources, now is the time to rekindle relationships, dust off your CRM, and prepare your systems for new ways of approaching revenue.

Why is this important

If you relied heavily on government grants, it’s time to flex your diversification muscles. In addition to traditional fundraising, look for any opportunity for income. You can get started with a few small changes even if you don’t have a significant development staff.

If your programs do not focus on the areas identified in the memo, you should still consider diversified funding options. There may be additional initiatives in the future.

How to do it

• Leave no stone unturned looking for diversification options. Are there fees you could charge for a service you provide or equipment you aren’t using that could be sold? Consider renting out unused space or using an on-demand merchandise option to provide your donors with another way to show their support.
• Identify current donors who have the potential to provide additional assistance. This includes board members. If you don’t have a slate of individual donors, lean on your board members and leadership to start building relationships.
• Reach out to local institutions and private grant funders, especially ones that are aligned with your impact area. Some may be allocating more funds to areas that will be losing federal funding. This includes corporate funders and partnerships.
• Identify people, process, and tech requirements for funding pivots. If you haven’t been highly focused on fundraising, take a hard look at your donation page and make sure your mailing lists are updated.
• Build crowdfunding capacity. Understand what it would take to support your champions who want to do a peer-to-peer fundraising campaign.
• Look to other nonprofit organizations that were not as affected by federal funding changes to see if there is overlap with your programs or partnerships to still support your community.

Mitigating Risk and Staying Resilient

As you navigate these funding changes, it’s crucial to remain proactive and adaptive. Begin by engaging your current funders and stakeholders and exploring new partnerships with local institutions and private funders. Tighten your operational strategies and ensure your performance data is up to date for informed decision-making.

By diversifying your revenue streams as much as possible and leveraging community support, you can mitigate some of the risk and build a more resilient funding model.

Want to learn more about the changes to federal funding and what steps you can take? Check out our webinar Preparing for Imminent Federal Funding Challenges: Immediate First Steps for Nonprofit CFOs.