Mitigating the impacts of a loss of a nonprofit revenue source

In the wake of last week’s news regarding the Office of Management and Budget memorandum instructing federal agencies to “temporarily pause all activities related to obligations or disbursement of all Federal financial assistance,” many of us are trying to understand the potential impact of a freeze on federal funding on the nonprofit sector.

While we continue to monitor developments, here are some resources on how nonprofits can mitigate potential impacts:

Diversifying nonprofit revenue streams

Diversifying revenue streams—including with government grants—so you’re not dependent on one unsustainable source is not a new idea but perhaps a more urgent one. These articles offer tips for developing a robust funding strategy.

Learning from peers to refine your nonprofit funding strategy. Drawn from the Bridgespan Group’s report Finding Your Funding Strategy: Benchmarking 101, this article outlines how to find the right mix of revenue sources for your organization: identify organizations that resemble yours in mission, size, and geographic scope; research their funding strategies; and share what you’ve learned with internal stakeholders—those who will be implementing the new strategy, as well as board members.

How nonprofit boards can support a sustainable funding strategy. A strong board can help develop an effective funding strategy by supporting a review of the current revenue mix or helping secure a specific type of funding. For example, obtaining high-dollar individual gifts will require different connections and skills than ensuring government funding.

Seeking more flexible, multiyear funding

Many in the sector are amplifying calls for unrestricted general operating support and multiyear funding, which supports greater organizational stability and capacity. What do we know about where funders stand on these types of grants? And what’s the best way for nonprofits to ask for more flexible and longer-term funding?

Where do foundations stand on multiyear funding? Candid’s 2024 Foundation Giving Forecast Survey found that while 67% of respondents awarded at least one multiyear grant in FYE 2022, the percentage of multiyear grants in their portfolios varied substantially. Out of 279 private foundations, only 16 said all their grants were multiyear, while 58 reported 50% to 99% and 89 reported 20% to 49%. Survey comments suggest that some foundations may be shifting their strategies to increase multiyear funding, notes Grace Sato, Candid’s director of research.

4 things we learned about foundations and general operating support. Nonprofits have long called for more unrestricted funding, and since 2020, many foundations have committed to making grants as flexible as possible. In the 2023 Foundation Giving Forecast Survey, 90% of respondents awarded some general operating support (GOS) in 2022, but fewer than 5% said all their grants were GOS. Definitions of GOS varied by foundation, however, and many weren’t tracking those grants.

How to ask your long-term funders for more money. If one funding source is in jeopardy, it seems logical to ask other longtime supporters to step up. So, how does a nonprofit fundraiser go about approaching a grantmaker for more funding? David M. Holmes, an educational programming manager at Candid, and Kate Tkacik Sweeney, Candid’s senior director of development, offer advice.

What are funders doing to reduce the burden on nonprofits?

Grantmakers are taking steps to help nonprofits facing financial, operational, and personnel pressures. Here’s what we know about the efforts funders have been making in recent years to reduce the burden on grantees.

Where are we seeing sustained changes in grantmaking practices to reduce grantee burden? Since the Council on Foundations COVID-19 Pledge to loosen or eliminate grant restrictions was launched, nonprofits have reported more funders are streamlining or revising grant reporting requirements, reducing or eliminating funding restrictions, and streamlining application and proposal processes. Elisha Smith Arrillaga, the Center for Effective Philanthropy’s vice president of research, writes, however, that more multiyear funding, deeper relationship building, and shifts in mindsets are needed.

We recognize that none of these resources can offer nonprofits immediate, short-term relief for this moment. But we hope they help provide a better understanding of the landscape, possible implications, and longer-term options for preparing for and mitigating the impacts.

For more general tips for fundraising and grantwriting, see:

Expert tips for nonprofit fundraising success

Elevate your nonprofit grant writing success with expert tips

What you need to know right now about donor-advised fund giving

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