Avoiding the Federal Funding Freefall: Strategies for Nonprofits

February 12, 2025

By Ariana Young, CPA, Senior Manager, Audit & Assurance, Tricia Katebini, CPA, MBA, Partner, Audit & Assurance, and Christian Spencer, Partner, Audit & Assurance

Nonprofits across the United States are facing significant challenges as federal funding has been cut or reduced. This unprecedented move is affecting the ability of nonprofit organizations to provide services and programs to those who rely on them to fill the gaps left by government programs. Fortunately, many organizations, through creativity and innovation, are finding new ways to adapt, collaborate, and continue their vital work. Read on to learn about some of the strategies they are using to stay afloat and meet the needs of their recipients.

Strategy 1: Diversifying Funding Sources

It should come as no surprise that diversification is an effective strategy. Recipients of federal funds should also pursue other avenues of revenue to help them weather disruptions from any one source. Private donations in the form of individual donors, foundations, and corporate partnerships have been an important revenue source for nonprofits since the beginning of their existence. In addition to donations, some nonprofit organizations have turned to fundraising events like galas, auctions, and virtual campaigns to engage local communities and generate revenue. Fee-for-service is another revenue-generating activity that can help nonprofits bridge the gap through services like training and education or case management. Recently, crowdfunding has gained momentum with online crowdfunding platforms like GoFundMe or Kickstarter, helping nonprofits raise money directly from supporters, with smaller contributions that collectively add up.

Given the current state of government funding, many nonprofits are also turning to emergency capital campaigns to raise substantial amounts of funding through targeted fundraising efforts. Increasing public awareness of your organization’s programs and their impact should be part of your strategy to support these fundraising efforts. In times of crisis, many nonprofits also turn to professional fundraisers who can cast a wide net for potential donors and funders.

Strategy 2: Scaling Down or Adjusting Programs

No one wants to scale back or end services, but this can be a temporary strategy until new funding can be identified. During times of budgetary crisis, organizations should consider their most critical services and scale down or end non-essential programs to make the most of limited funds. In the most extreme cases, it may also be necessary to reduce staffing to keep their operations running.

The good news is that there are alternatives to furloughs. Nonprofit organizations can shift team members to part-time or reduced schedules. This may also be an ideal time to call on volunteers who have traditionally supported the organization to fill in any gaps (for more, see Strategy 7).

Strategy 3: Streamlining Operations

Today’s technology offers opportunities to streamline operations and create efficiencies. Gone are the days of nonprofit team members burdened with manual processes that waste valuable resources. Nonprofits are increasingly finding ways to cut operational costs by using technology more effectively, renegotiating contracts, or reducing overhead expenses.

As part of the digital transformation of the nonprofit industry, organizations are turning to digital tools to enhance their outreach and improve efficiency, such as offering online services, virtual events, or remote work options for staff.

Strategy 4: Partnering with Other Organizations

Partnerships between organizations with complementary missions are a powerful strategy that are often overlooked. Teaming up with organizations serving the same constituency allows nonprofits to pool resources and share costs during times of financial stress. Through collaboration, they may continue delivering services without duplicating efforts, thereby saving money. Moreover, joining forces with other nonprofits can strengthen advocacy by amplifying your voice and allow your organization’s work to be exposed to a wider audience. Examples of nonprofit partnerships include joint fundraising campaigns, co-developed programs, and sharing volunteer resources to support each other’s initiatives.

Strategy 5: Leveraging State and Local Programs and Alternative Funds

Nonprofits are increasingly looking to state and local governments to fill the gap left by federal funding cuts. These grants, contracts, and other partnerships can sometimes be more accessible and tailored to specific community needs. Benefits of these arrangements include more than just financial resources. Nonprofits can gain more influence with policymakers and other donors while delivering on their mission and helping governments address local needs potentially at a reduced cost to taxpayers.

Strategy 6: Advocacy and Lobbying

Nonprofits are increasing their advocacy efforts to lobby for the restoration of federal funding or the implementation of alternative funding models, often forming coalitions to strengthen their collective voice. Advocacy efforts can include building strong relationships with policymakers, educating the public about their cause, mobilizing supporters through grassroots efforts, and using effective communication channels like social media.

Public awareness campaigns can be an effective tool for nonprofits to educate the public and policymakers about the critical services they provide, advocating for financial support from both private and government sources simultaneously.

Strategy 7: Engaging Volunteers

As funding cuts strain staff numbers, nonprofits are tapping into volunteer networks to support service delivery. Volunteers may provide direct services, help with administrative work, or help with fundraising efforts. Proactive nonprofits are developing specialized volunteer programs for specific needs, such as disaster relief or food security, where volunteers play a larger role in delivering services.

Nonprofits can attract volunteers by posting opportunities on their own websites and social media as well as posting to online volunteer recruitment websites. Attracting and retaining volunteers can be bolstered by offering a variety of volunteer roles, offering training to help volunteers succeed, and highlighting how volunteers contribute to the organization’s mission.

Strategy 8: Innovative Service Delivery Models

Innovative organizations are deploying mobile units or pop-up services that bring resources directly to underserved communities, reducing the cost of physical infrastructure. Examples include using mobile clinics to provide access to healthcare or setting up temporary locations in high-traffic areas such as shopping malls, busy streets, or community centers. Added benefits of pop-ups include allowing them to reach people who might not actively seek out services at a fixed location and providing visibility and increased awareness of the organization and its services. Nonprofits traditionally offering in-person services have also been shifting to digital platforms. For example, counseling, educational programs, or job training can be offered remotely to support reach while cutting overhead costs.

Strategy 9: Harnessing the Collective Power of your Board

Now more than ever, organizations should be engaging with their board members both collectively and individually. Board members serve as ambassadors for your mission by highlighting the important work and value your organization provides to the population or community it serves. In addition, board members can take lead roles in fundraising campaigns by reaching out to potential donors in their individual networks and communities. Recently, one nonprofit board sprang into action in response to the loss of federal funding and secured over $1 million in new donations in two weeks.

Conclusion

While the loss of federal funding has undoubtedly posed significant challenges, these strategies reflect the resilience and adaptability of nonprofits. While a pivot in funding and operational strategy is never easy, nonprofits should focus on continuing their work through innovation, partnerships, and community support to fill the gaps and continue serving those in need.