How Nonprofits Can Protect Financial Stability Amid Federal Funding Changes
To say these are stressful times for nonprofits is an understatement.
Various executive orders from President Donald Trump and the subsequent Jan. 27 memo from the Office of Management and Budget directed agencies to freeze federal grants, loans and other forms of financial assistance to nonprofits with government contracts. A federal judge temporarily blocked the effort. The agency later rescinded the memo.
Philanthropic efforts, still under strain from massive shifts in giving during the pandemic, may now face additional challenges building resiliency into their missions. Though a federal judge extended the temporary order to halt the funding freeze on Feb. 3, many organizations across the nation are still struggling to access funds — even for programs such as Head Start programs, where the Trump Administration indicated the freeze would not have any impact.
What’s more, Republican majorities in the House and Senate, although slender, can still bypass the need for a filibuster-proof majority through reconciliation to pass a spending package that may further restrict or deny federal funds on which nonprofits previously relied.
With federal funds in peril, I’ve seen the most effective nonprofits already adapting to protect their long-term work from the possibility of a federal funding drought. Here are three steps these nonprofits are taking to prepare.
1. Assess the Damage
While funding is resuming, delays are possible. Keep a close eye on outstanding payments and assess how this disruption has affected your budget. If you haven’t already, review your cash position to see any lingering impacts from the executive order or other funding cuts that may follow.
During the early days of lockdown during the pandemic, many nonprofits switched from annual cash flow forecasts to monthly intervals. Cash was king, and organizations kept an even closer eye on liquid assets to pivot to the new normal. A return to this level of scrutiny may be warranted.
2. Look for Alternatives
It may take time to replace money lost by the disruption of federal funds. Some nonprofits are more reliant on these funds than others, but, in any case, private grants, new fundraising campaigns and collaborations with other organizations can reduce your exposure to changes in federal grant policies. Deep relationships with your supporters may allow you to be more flexible with the money that you already have.
In 2020, nonprofits asked endowment donors to release restrictions on endowment gifts in order to support the operations and programming of the nonprofit. This is a common practice in times of economic crisis, and it is a strategy well worth revisiting today. Donors may even fully release their endowments to function as a board-designated endowment. In any event, this is a big ask and a major test of the trust you have earned with your donors. Talk openly about ways to bridge your short-term needs, and present plans for long-term reinstatement of any endowments that are altered in this way.
There are also specialized nonprofit consultants that can help organizations with feasibility studies, strategy and more to achieve long-term return on investment. I’ve also seen nonprofits find success with seed donors to help them pay for special projects with the ultimate goal of branching out to completely new funding sources.
3. Show How a Funding Freeze Impacts People’s Lives
Now is the time to use your social media channels and community centers of influence to their utmost. Your donor base needs to know what your nonprofit is trying to achieve, and how further disruption of federal funding might imperil your mission. Speak to people who may not be aware of the good that you perform behind the scenes and out of the limelight. Speak to policymakers and voters.
It is not enough to say something like, “A spending freeze would imperil 10% of our revenue.” Make it concrete. What would the absence of those funds mean in terms of the community outcomes your organization creates?
The most successful organizations I see have a budget and plans that can be fluid. For example, a funding decline could cause a decrease in the number of outcomes that are achievable, but it does not affect the organization’s ability to operate that program on a different scale for a period of time. These organizations already have contingency plans to re-allocate resources and funding during times of crisis so that the impact is minimal. Cross-training resources, leveraging staff in a multi-faceted manner and working with donors up front on contingency plans for alternate use of funds is key.
Whatever form your strategy takes, do not allow urgency to become panic. Although it is wise to plan for the worst, there is hope that the pushback to the executive order will demonstrate the widespread necessity of the programs and nonprofits that, until now, have received federal funding. In any case, strong donor relationships and open lines of communication are a nonprofit’s greatest assets for the foreseeable future.
The preceding post was provided by an individual unaffiliated with NonProfit PRO. The views expressed within do not directly reflect the thoughts or opinions of NonProfit PRO.
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Stacie Cornwell has 18 years of experience in public accounting. She specializes in serving nonprofit, higher education, social service, healthcare and religious organizations, and she has extensive experience providing single audit services. Stacie serves as the nonprofit industry leader in the Armanino Growth Office.
She works collaboratively with her clients, to keep them informed of accounting regulations that can impact their audit. She also provides specialized expertise on complex accounting issues, including revenue recognition, convertible debt instruments, investments and fair value measurements, endowment accounting, equity compensation, board governance and benchmarks for financial performance. In addition, she has experience performing gap analyses and developing process and workflow charts to strengthen internal controls and mitigate risk.
Stacie Cornwell is a certified public accountant and member of the American Institute of Certified Public Accountants and the Texas and California societies of CPAs. She is a former adjunct professor of accounting at the University of San Francisco, and she received a Bachelor of Science in accounting and a Master of Business Administration from Arizona State University. Stacie is the chair of the Armanino Women’s Advancement Network and sits on the Women in Leadership Advisory Panel at the University of Houston, Bauer College of Business.
