Financial Planning in the Face of Economic Uncertainty

For nonprofits on calendar fiscal years, you are likely deep into the budgeting process for 2025. Even if you follow a different fiscal year, you may be considering how potential economic shifts will impact your budget in 2025.

Swift and significant changes are being promised by the incoming administration involving policies that are likely to stir up questions and feelings of uncertainty in many corners: mass deportations of undocumented immigrants, increasing tariffs and deep cuts to federal agencies. If carried out, these measures could make waves throughout our economy, as well as the nonprofit world, going so far as to impact how donors give, the amount of government funding available for grants and the cost of goods and services needed to operate.

As we consider how to support our clients during this time, I am reminded of the lessons learned during the COVID-19 pandemic. This period created a perfect storm of reactive giving and spending (or not spending). The organizations that survived were the ones that planned for and anticipated the reactivity of others.

As you enter 2025, we want to remind you of some best practices to help you navigate a shifting economic landscape.

Do Thoughtful Scenario Planning

Great leaders can adapt quickly and decisively to the unexpected. And the best leaders take advantage of the hive mind of their most trusted advisors. Gather your executive team and financial advisors and conduct thoughtful scenario planning. Create if-then scenarios and solutions. What will you do if you lose that grant you are relying on? What if individual giving takes a nosedive? What if you must cancel your annual gala? What if the demand for your services increases? At what point will you need to impose a waiting list? What expense will be cut first? What if you receive more funding than you anticipated? How will you ensure that you support your employees through an economic downturn?

During the pandemic, some of our clients went into survival mode and had to determine potential losses and which expenses to cut. Even more went into hyperdrive, as the demand for their services rose significantly when people lost their jobs and had increased mental health or educational support needs. Their scenario planning looked different, as funders were seemingly throwing money at them to help meet the demand for their services.

Doing thoughtful scenario planning will make you more responsive and ready to adapt to the unexpected. This is a time to think outside the box and get creative. The willingness to reevaluate practices and to change a mindset are critical survival skills for any nonprofit.

Get Clear on Your Unique Value Proposition

Get very clear on why you exist. What would change if your organization no longer existed? Are you the expert in your mission space? If not, get there really fast. Understand how your organization fits into the ecosystem of services within your community. Do you fill a gap that no one else does? Do you have outcomes to support your impact?

Make sure that you are tracking the right data to demonstrate your relevancy. Data can include stories of change and impact. The key is that you can clearly articulate your relevancy.

This is even more important for smaller and/or newer agencies. During the pandemic, many major donors made a PR splash with large gifts to nonprofits like big-name food banks. Meanwhile, small nonprofit childcare agencies that served frontline workers, enabling them to show up for work, were closing down from a lack of funding. How could these smaller nonprofits have gotten the word out about what they do?

Once you can articulate your unique value proposition, get your story to those who can do something about it. You and other nonprofits may need to band together to get attention. This is why it is so important to understand your place within an ecosystem of community support. Collaboration can be complex, but it can elevate all partners involved.

Cultivation is King   

Regardless of how great its services are, if an organization can’t get funded, it’s not viable. Donors do not magically come along. This means you need to know donors.

When writing grants for our clients, we assign probability ratings to the grant opportunity: We give a 10 percent chance if it is a cold ask with no previous cultivation; 50 percent if it’s a warm lead that has some cultivation or an invitation to apply; 75 percent if there is past giving and it is considered a good relationship; and 90 percent if there is a verbal agreement to give a gift. We use this system as a way of encouraging our clients to see the value of cultivation. So, with a 10 percent chance, does getting a gift from a cold ask ever happen? Sure. But it usually happens when an organization is doing something innovative and can really articulate relevancy and impact. Even so, wouldn’t you rather have a 50 percent or higher shot at getting a gift?

Make sure that you make building relationships – all year long. Just like your personal friendships, if you haven’t been putting effort into your friends for the past several months, you aren’t really in a position to ask them to dog sit for you when you have to leave town last minute. When you have an urgent financial need and are hoping for a donor who can make a quick $10,000 decision, you will be hard pressed to find one if you haven’t been putting the time into building relationships.

Advocating for Your Nonprofit

You may be put into the position of advocating for your mission or nonprofits in general. Don’t shy away from doing this. When it comes to funding these efforts, federal law allows nonprofits to direct up to five (5) percent of their budgets for lobbying activities.

In November 2024, many nonprofit professionals and volunteers lobbied against H.R. 9495, a bill passed by the U.S. House of Representatives and now on its way to the Senate. The bill gives the executive branch the authority to label a nonprofit as a terrorist organization, revoke its nonprofit status, shut it down and cease its assets as it sees fit –– all without due process. While this was intended to be anti-terrorist legislation to prevent groups from aiding terrorist organizations, the potential for abuse of this authority by the government raised alarms. Many called their congressmen and demanded that they vote no on the bill to protect nonprofits from being shut down without due process. Despite the bill passing, lobbying efforts did have sway –– what was originally 52 yeas from Democratic lawmakers changed to 15 yeas in the final House vote. Our voices matter.

You can budget to go to state or national capitols to speak with legislators about their agenda or to influence votes that impact the mission you serve. This is also an opportunity for you to collaborate with other agencies in your mission space for greater influence and to leverage resources. For instance, as a volunteer, I am participating in a collective impact organization’s lobbying trips to discuss funding and favorable policies for mental health and homeless services. These are agenda items that impact a broad intersection of nonprofits and the overall community.

In addition to lobbying, you may budget for grassroots advocacy, which is citizen-based activism. As part of this, a nonprofit can educate its stakeholders on how to impact public policies and regulations that affect them. When doing this, make taking action easy by providing stakeholders with resources, like how to access their legislator’s contact information and scripts to use when making calls or sending emails.

Using these best practices, you will be able to plan for 2025 and beyond. Remember that you are the guardian of your mission and it needs thoughtful financial planning to be sustainable.