Financial Action Plans for Nonprofits Impacted by Federal Funding Freeze 

The freeze on federal aid funding set into motion by President Trump’s Executive Order: Reevaluating and Realigning United States Foreign Aid has created chaos and uncertainty for nonprofit organizations receiving federal grants. Organizations facing financial uncertainty can take immediate steps to help mitigate the impacts and pursue stability.

Some important steps and considerations include:

1. Evaluate access to funds

When funding abruptly stops, the first step is to assess what funds are available for immediate access. Nonprofit organizations will often have both internal and external barriers to the use of cash, imposed by donors, board requirements, and banking restrictions. Work with your board of directors to understand what governance is in place that could complicate access to reserves, endowments, or other cash, and don’t make spending decisions without also understanding any requirements around replacing depleted reserves. Your board of directors may also be able to help with establishing banking relationships and navigating risks associated with assuming more debt.

2. Anticipate upcoming expenses

Next, identify all known upcoming expenses, including upcoming bill payments, capital expenditures, and overhead costs. Look for opportunities to cut or delay expenses without triggering severe adverse effects on the organization’s operations. Consider increasing remote work and downsizing office space, and negotiating with creditors, landlords, etc. Explore reducing employee hours before resorting to layoffs, and weigh the cost of replacing any critical employees in the future against any benefits from terminating roles now.  

3. Assess cash flow and liquidity

Once you have a clear understanding of available funds and impended expenses, you can assess your organizations financial health. A simple formula can help determine how many months of operating expenses you have on-hand. First determine your financial assets, i.e. the organization’s cash & cash equivalents plus any pledge or trade receivables plus investments. Subtract any donor-restricted net assets or otherwise restricted assets to arrive at liquid assets. Divide the liquid assets amount by your monthly average expenses. The lower the number, the faster you need to act to secure additional funding and make strategic decisions. 

4. Conduct a risk assessment

With a better picture of your current financial position, take steps to also understand your financial risk. Take inventory of all revenue sources, such as government grants and contracts, individual donors, foundation grants, and other sources. What percentage of your total revenue comes from each category, and are any of those categories particularly vulnerable? Consider broadening the diversification of funding sources.

5. Leverage your network

Building, maintaining, and leveraging your network will be critical. Your board of directors, donors, and field networks will play important roles in your preservation and acquisition of funding. Additionally, many will be proactively looking for ways to support nonprofits during this period of uncertainty; foundations may be more amenable to releasing or relaxing restrictions on funding, and donors may be considering donating at higher rates and values. Create opportunities for your network to support you and emphasize the importance of unrestricted donations during this time.

6. Maintain compliance efforts

Even in a crisis, maintaining compliance is crucial. Complete timely audits to show transparency and assure funders. Adhere to grant terms and conditions and the Uniform Guidance. Continue to pay payroll taxes and follow all employee compliance requirements. Keep communicating with all lenders and be proactive if you anticipate any missed payments. 

7. Communicate with key stakeholders

As uncertainty continues, avoid misunderstanding and mitigate panic by prioritizing clear communication at all times. Keep lines of communication open with all stakeholders, including your board of directors, funders, organization leadership, staff, volunteers, and constituents. Create regular cadences of communication tailored to the different audiences in your network.

8. Find trustworthy advisors

Don’t try to navigate a crisis alone. Build a strong network of trustworthy advisors that can help guide your decisions and support your organization. Your Board of Directors is designed for this, but make sure your team includes strong legal, financial, and accounting advisors with specialized knowledge in nonprofit and grant work. 

The bottom line 

Nonprofit organizations affected by the federal funding freeze will need to act swiftly and strategically to mitigate financial impacts. Assessing cash flow and reserves, maintaining compliance efforts, and leaning on your network will be critical. 

Navigating stop-orders and other changes can be complex, but you don’t have to do it alone. Aprio’s Government Contracting and Nonprofit teams are here to guide you every step of the way. Whether you need support with claims work, termination settlements, or strategic planning, we’re ready to help. 

Connect with an Aprio team member.  

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