By Nathan Musgrove, CPA & Founding Partner

Excelsior Accounting Services

If you're leading a nonprofit right now, chances are there is one particular stressor that is keeping you tossing and turning at night – funding. Federal grants that seemed secure just months ago are suddenly frozen or gone entirely. For many small nonprofits, this isn't just a budget headache – it's an existential threat. When 30%, 40%, or even 50% of your revenue disappears overnight, every decision feels impossibly high-stakes.

The ripple effects go far beyond the immediate cash crunch. You're likely wrestling with impossibly challenging choices: Do we lay off staff who've been with us for years? How do we explain this to our board? Should we drain our modest reserves? What happens to the families, students, or communities counting on our programs? These aren't just financial questions – they strike at the heart of why you got into this work in the first place.

Here's the good news: while we can't control what's happening with the broader funding environment, we can control how we prepare for it. With some straightforward planning tools – none of which require an accounting degree to understand – you can position your organization to weather this storm and emerge intact. Let's walk through exactly how to do that.

Making Sense of Uncertainty: The "What If" Game Plan

When everything feels uncertain, the natural tendency is to freeze – to wait and see what happens before making any decisions. But that approach can leave you scrambling to react when time is your scarcest resource. Instead, what if you played out the different possibilities ahead of time and had a response ready for each one?

That's exactly what scenario modeling is, and it's simpler than it sounds. Think of it like this: you're going to sketch out three different versions of your financial future and decide in advance what you'd do in each case. Here's what that might look like for a small nonprofit facing federal funding uncertainty:

Best Case: Your $250,000 federal grant gets released in full within the next two months. In this scenario, you breathe a huge sigh of relief and focus on strengthening other funding sources so you're not caught off guard next time.

Middle Ground: You get back $175,000 of your grant (a 30% cut) sometime in the next quarter. You'd need to reduce program expenses by about $75,000 annually, which might mean cutting a position or scaling back program activities, but your core mission stays intact.

Worst Case: The federal funding is gone permanently. You need a plan to close a $250,000 annual gap through some combination of growing other revenue, cutting expenses, and carefully using reserves as a bridge while you adjust.

The real value isn't in guessing which scenario will happen – it's in thinking through your response to each one before you're forced to make rushed decisions under pressure. When you and your board have already talked through the tough questions, you can act quickly and confidently when the situation becomes clear.

Four Practical Tools for Your Contingency Plan

Now that you understand the "what if" framework, let's talk about the specific tools you'll use to build out each scenario. These aren't complicated financial instruments – they're practical strategies that any nonprofit leader can implement, regardless of your finance background.

1. Look for Ways to Grow Your More Reliable Funding

When one funding source becomes shaky, it's time to lean more heavily on the sources that aren't. Take an honest look at where your other revenue comes from and ask: where could we realistically bring in more money without starting from scratch? Maybe you have 150 individual donors but you've never really asked them to increase their giving. Perhaps you run an annual gala that breaks even, but with some tweaks could become a real revenue generator. Or maybe you provide services that similar organizations charge fees for, and your community could actually afford to pay something.

The key word is "realistically." You're not trying to invent an entirely new revenue stream that would take years to develop. You're looking for ways to do more of what's already working. If your donor base is loyal but small, that's easier to grow than building a donor base from nothing. If you have corporate relationships for volunteering, could some of those companies become financial sponsors too? Start with your existing relationships and strengths.

2. Identify What You Could Cut with Minimal Immediate Pain

This is probably the exercise everyone dreads most, but it's also one of the most empowering. Here's why: you're not actually cutting anything yet. You're simply identifying what you could cut if you needed to, which expenses would hurt the least in the short run, and in what order you'd make those cuts. Think of it as writing yourself a playbook that you hope you never have to use.

Start by going through your budget line by line and marking expenses in three categories: (1) Absolutely essential to keeping the doors open and programs running this year, (2) Important but could be paused for 6-12 months without major disruption, and (3) Nice to have but genuinely optional. That professional development conference? Category 2 or 3. The software subscription you barely use? Category 3. That part-time position that's been vacant for two months anyway? Maybe category 2. Your program director who runs everything? Definitely category 1.

When you finish this exercise, you'll have a clear map showing you could cut, say, $50,000 from category 3 items immediately, another $75,000 from category 2 items if needed, before you'd ever have to touch the core staff and programs in category 1. That's not just a contingency plan – that's peace of mind.

3. Forecast Your Future Cash Flows Monthly for The Next 12 Months

Most small nonprofits look at their budget once a year and maybe check in on it quarterly. But in uncertain times, you need to know not just whether you'll have enough money this year, but whether you'll have enough money in March. Or June. Or September. This is what finance people call a "cash flow forecast," but really it's just a simple spreadsheet showing when money comes in and when it goes out.

Here's how it works: take your bank balance today and then go month by month adding the money you expect to receive and subtracting the money you expect to spend. By the time you get to month 12, you can see whether you're headed for a cash crunch in April (when payroll is due but your big spring fundraiser hasn't happened yet) or if you're actually in pretty good shape through the end of the year. The "rolling" part just means that every month, you update it with actual numbers and always keep a full 12 months ahead of you in view.

This might sound tedious, but it's honestly one of the most valuable habits a nonprofit leader can develop. It transforms your financial picture from an annual guessing game into a month-by-month reality check. You'll spot problems while you still have time to fix them, rather than being surprised when the checking account runs low.

4. Be Your Own Best Friend – Buy Yourself Time with Smart Cash Management

Sometimes you don't need to cut expenses or find new revenue – you just need to create some breathing room while you figure things out. There are several ways to do this that many nonprofit leaders don't think about until they're in crisis mode, but they're much easier to arrange when you're not desperate.

First, talk to your major vendors. That insurance company, your waste management service, your biggest program suppliers – many of them will extend your payment terms if you simply ask, especially if you've been a reliable customer. Instead of paying bills right away or in 30 days, maybe you can negotiate 60 or 90 days for the next six months. That's money that stays in your account longer.

Second, look at your funders. Can any of your reimbursement-style grants advance some of the payment or reimburse you more frequently? Could the major donor with a large multi-year pledge accelerate their pledge payments? We’re often afraid the slightest ask will jeopardize a key funding source, but it’s important to remember every single funder has made an intentional choice to support your organization, your mission and your programs – and all of them have a vested interest in your sustained success.

Finally – and this is important – if you have a line of credit with your bank, now is the time to ask about increasing it, even if you don't need the extra money yet. Banks are far more willing to extend credit when your financial statements look decent than when you're already in trouble. Think of it as buying insurance you hope never to use. The worst thing that can happen is they say no and you’re simply right where you started. But if you ask early enough, when your financial profile is still relatively strong, you have a good chance of securing an additional financial cushion to help get you through a tough time before it’s too late.

You've Got This

If you're feeling overwhelmed by all of this, take a breath. You don't have to become a financial expert overnight, and you don't have to do this alone. The tools we've described here are straightforward enough that you can tackle them with your bookkeeper, a trusted board member, or an outsourced accounting partner. What matters most is that you start the conversation now, while you still have options, rather than waiting until circumstances force your hand.

Leading a nonprofit through uncertain times isn't easy, but you're not powerless. With some thoughtful planning and the willingness to ask "what if" before you have to ask "what now," you can navigate whatever lies ahead and keep your mission moving forward.

About the Author

Nathan Musgrove is a CPA and the founder of Excelsior Accounting Services, a Cincinnati-based professional services firm specializing in outsourced accounting, financial management, and strategic financial advisory services for nonprofit organizations. With extensive experience in nonprofit finance and a deep commitment to helping mission-driven organizations achieve financial sustainability, Excelsior’s experienced and compassionate professionals work with nonprofit leaders and boards to navigate complex financial challenges and build stronger financial infrastructure. Excelsior Accounting Services provides a comprehensive range of services including fractional CFO support, controller services, bookkeeping, financial planning and analysis, and interim staffing solutions – all designed to help nonprofits maximize their financial resources in service of their missions.