Across the country, nonprofits are confronting a sudden and severe financial shock: federal funding theyve long relied on is being pulled backabruptly, and in some cases, entirely. In recent weeks, the Trump administrations spending cuts have triggered frozen contracts, rescinded grants, and stop-work orders across federal agencies.
The moment has highlighted the financial vulnerability of many institutions, and underscored the importance of building more resilient, diversified funding models that arent solely dependent on federal dollars.
Organizations that once built multi-year budgets around government commitments are now rewriting financial plans weekly just to keep up. Delays, backlogs, and revenue gaps have become routine. According to the Urban Institute, between 60% and 80% of nonprofits that rely on public funding would face serious financial shortfalls if that support disappeared.
Due to resource constraints, many nonprofits have treated financial management as a day-to-day operational function, with less emphasis on its role as a strategic driver of mission impact. But in todays environment, that approach is no longer sustainable. Volatilityfrom elections, markets, and geopoliticshas become a permanent feature of the landscape. Organizations that fail to adapt risk not only missing opportunities but also jeopardizing their ability to weather the next downturn.
To meet this challenge, nonprofits must elevate financial strategy to a central pillar of leadership. That starts with three critical shifts:
Investment oversight must be proactive, not passive
In todays climate, checking in on financial performance once a year just isnt enough. Many nonprofits are now reviewing liquidity monthly or quarterly and running scenario planning exercises to stress-test how unexpected shiftslike a delayed government payment or a rescinded grantwould affect their ability to meet payroll or sustain core programs.
Boards can support this work by ensuring theres a clear investment policy aligned with the organizations real-world cash flow needs and risk tolerance, and by revisiting that policy regularly. Investment committees, in turn, can work with advisors to shift more assets into more liquid investments, giving them flexibility when contract payments are late or major gifts dont come through.
Donor strategy must become a financial strategy.
With once-reliable federal funding no longer a given, nonprofits must actively cultivate alternative revenue streamsand that responsibility shouldn’t fall solely to the development team. Donor engagement must be tightly integrated with financial planning. That includes segmenting and expanding donor bases to identify those with capacity to give more, using predictive analytics to anticipate giving patterns and gaps, and aligning fundraising calendars with financial forecasts.
Finance and development teams, or external financial partners, should work together to build models that estimate how different donor strategies impact year-end liquidity and long-term planning. In short: Strengthening donor revenue is not just a development goal, its a financial imperative.
Endowments must be treated as mission-sustaining tools.
Endowments are more than rainy-day fundstheyre meant to ensure the perpetuity of the organizations. Over the past two decades, nonprofits have taken important steps to diversify their portfolios. In fact, average exposure to public equity and fixed income has dropped from 70% to 39%, while allocations to alternatives such as private equity and hedge funds have more than doubled. That shift can offer stronger returns, but diversification isnt a one-size-fits-all strategy. For organizations that depend heavily on government contracts or grants, an overly rigid or illiquid portfolio can create real vulnerabilities in times of stress.
Take, for example, some of the nations most prestigious universities. Even institutions with multi-billion-dollar endowments have recently moved to sell private equity holdings to increase liquidity, citing political and financial uncertainty around federal funding. When organizations of that scale and sophistication reconsider their exposure to illiquid assets under stress, its a clear signal: Alternative investments must be approached strategically, with a careful understanding of both short- and long-term cash needs and risk tolerance.
A tiered approach to liquidityreserving some assets for near-term access while investing the rest for long-term growthcan help organizations stay resilient, especially those that rely heavily on government grants or contracts to fund operations.
Ultimately, resilient philanthropic missions require resilient financial models. That means seeking expertise not only in investment performance, but in governance, risk management, and long-range planning. Advisors and teams that understand how to connect financial oversight to mission outcomes can help institutions build confidence internally, with donors, and with the communities they serve.
The current crisis has made one thing clear: Static portfolios and static strategies are liabilities. Financial oversight must evolve from a compliance checkbox into a dynamic leadership function, one that safeguards todays operations and secures tomorrows mission.
