Over the last month, the federal funding landscape has undergone significant changes that present challenges and create uncertainty for many nonprofits that depend on grants to provide essential services. On January 27, 2025, the Office of Management and Budget (OMB) issued Memorandum M-25-13, instructing federal agencies to pause all disbursements of federal financial assistance, affecting thousands of programs.
Although the memorandum was officially withdrawn on January 29, some agencies continued to withhold funds, leading to delays and uncertainty for nonprofits relying on federal grants. While many organizations have filed legal challenges to restore their funding, the continued uncertainty leaves many nonprofits questioning how to sustain their operations and plan for a more resilient future.
Despite these challenges, organizations have an opportunity to build resiliency into their financial management, diversify revenue streams, and help improve grant management strategies.
Stay Informed & Proactively Monitor Policy Changes
Federal funding policies are rapidly evolving, making it essential for nonprofits to stay informed about new and changing regulations, budget modifications, and administrative priorities. It is encouraged that nonprofits actively monitor announcements from government agencies, like the OMB and specific agencies providing the organization with funding, for any new or proposed changes in regulations.
In addition, it is critical to stay actively engaged with federal grant officers to understand how specific policy changes may affect your organization’s funding opportunities. If the grant officer changes or leaves their position, it may help to immediately contact the new officer to open the lines of communication. Reach out to nonprofit advocacy organizations, such as the National Council of Nonprofits and Independent Sector, for valuable insights and opportunities to learn about collective advocacy efforts.
Organizations can stay ahead of potential funding shifts by subscribing to agency newsletters and potentially setting up Google Alerts for phrases such as “federal grant funding cuts.”
Strengthen Internal Grant Compliance & Risk Management
It is more important than ever for nonprofits to safeguard compliance with evolving regulations. This process drives the need for organizations to strengthen their internal controls and conduct regular internal and external analysis.
Nonprofits should scan grant agreements to help ensure expenditures align with requirements and maintain detailed documentation to help mitigate risks.
In addition, nonprofits may prepare for potential delays in federal disbursements by creating contingency plans to cover operating expenses, in case funds are temporarily frozen or withheld. Schedule a meeting with your banking contact to explore programs from a lending perspective. Ask questions such as, “Can the organization secure a line of credit or renegotiate existing debt,” or “Are there other ways to reduce banking fees or access capital?”
These proactive measures may help safeguard against funding disruptions and position organizations as responsible stewards of public funds.
Diversify Revenue Streams
Nonprofits that rely heavily on federal funding are particularly vulnerable to sudden policy changes. Diversifying funding sources is key for organizations to help improve stability and possibly mitigate financial risks. Options for diversification include exploring private and corporate grants, engaging individual donors, and expanding digital fundraising efforts. When pursuing alternative revenue streams, emphasize the need for unrestricted funds since they may boost the organization’s ability to pivot and respond to program needs with as much flexibility as possible.
Developing fee-for-service models, initiating social enterprise projects, and creating membership programs can provide valuable alternative revenue streams. Conducting a diversification assessment can gauge existing funding sources and help organizations identify new potential sources of income, helping to provide long-term financial sustainability.
Advocate for Your Cause & Engage Policymakers
Nonprofits play a vital role in shaping policy decisions and must actively engage in advocacy efforts to protect essential funding sources. Here are additional ways to do so:
- Join coalitions and networks focusing on nonprofit policy advocacy to spread your organization’s influence.
- Meet with legislators and government officials to educate them on your organization’s community impact and the consequences of funding to build support for continued funding.
- Utilize data-driven storytelling by sharing real-life examples of how funding supports critical services. This can help you build a case for sustained investment in your nonprofit programs.
Prepare for Budget Cuts & Funding Uncertainty
Scenario planning is crucial for nonprofits dealing with funding uncertainty. By developing multiple budget scenarios, organizations can weigh the effects of different funding levels and adjust their strategies accordingly. Discuss the scenarios at the board level to obtain buy-in from and access to stakeholder networks and legislative influence.
Even if it is modest, establishing an emergency fund provides a financial safety net during unexpected funding disruptions. Collaboration with other organizations (to share resources and work on joint programs) can help nonprofits maintain their impact even when facing budget constraints. For example, host a leadership team meeting to explore possible funding loss scenarios and create contingency strategies. This can help prepare organizations for any challenge.
Resiliency Is Key
Uncertainty regarding federal grants poses vast challenges for nonprofits, but organizations can remain resilient through proactive planning, strong compliance measures, and diversified funding sources. Organizations can effectively navigate these shifts by staying informed, improving their financial management, and advocating for policy stability, all while continuing to serve their communities.
If your nonprofit needs assistance navigating funding challenges, we are here to help. For guidance on grant compliance, budgeting, and strategic planning, please reach out to a professional at Forvis Mazars.
To learn more about challenges faced by nonprofit organizations and how they are addressing them, download a copy of our 2025 State of the Nonprofit Sector Report.