A Blueprint for Nonprofit Sustainability Amid Funding Challenges in 2025

American nonprofits are in the midst of an existential crisis, specifically regarding funding and mission viability. I don’t say this lightly, and this dilemma is not likely to resolve itself anytime soon. The loss of the American Rescue Plan Act was anticipated, but nonetheless, has caused nonprofits to make critical decisions about their strategic operations and personnel over the next 18 months. 

The recent uncertainty around federal funding has compounded the situation. Beyond the federal agencies that have been laid bare in the wake of Department of Government Efficiency cuts, this uncertainty extends to state, county and municipal governments, jeopardizing the timing and assurance of receiving essential funding to continue their missions. Given the typical structure of nonprofits, it is difficult to imagine a scenario where many nonprofits will outlast this funding uncertainty.

I suspect that, as a result of these trends, as many as 10% to 20% of American nonprofits will be forced to shutter by 2028 or sooner. To combat this increasing uncertainty, I recommend three strategies that service organizations can consider to offset funding challenges in the near term. 

First, innovate as a means for growth. Second, consider the full array of strategic partnerships and even merging with other service organizations. And third, invest in assets to sustain your balance sheet. Implementing at least one of these strategies can provide a clearer operational plan to address the current threat to mission viability.

1. Innovate to Survive

Many organizations believe they can overcome financial uncertainty by saving their way through the difficult times. I do not recommend this course of action. Saving money during a financial crisis prevents organizations from fully executing their service mission. It also assumes that the disruption is only temporary. However, even with an immediate reversal of recent policies, the consequences of the structural changes to nonprofit funding will take months or years to mend. 

Organizations must innovate to create new sources of revenue to offset the loss of funding. In 2020, in the wake of the COVID-19 pandemic shutdowns, we at the Southland Development Authority created a new service offering to advise small and medium businesses on how to qualify for American Rescue Plan Act funds and adjust business operations during the crisis. Known as business growth services, this significant innovation brought the Southland Development Authority’s annual revenue from $250,000 to $2.2 million. The introduction of business growth services helped us raise our organization’s bottom line while benefiting hundreds of businesses in the Southland —, something integral to our mission. 

2. Consider a Spectrum of Strategic Partnerships

The merging of nonprofits is usually a problematic and unfamiliar idea for many service organizations. Unfortunately, given the severity of the ongoing funding dilemma, I believe nonprofit mergers will become more frequent in the next six to 12 months. 

Nonprofit mergers shouldn't be seen as a negative thing. Mergers are an option on the spectrum of strategic partnerships available to organizations and can help increase capital allocation, enhance service offerings and improve operational efficiency.

Nonprofits facing severe funding shortfalls should consider all levels of strategic partnerships, including mergers, as a means to bolster their capacity and mission viability. 

3. Invest in Asset Targeting

Nonprofits should develop a strategy to access supplemental working capital. Assets can serve as a stabilizing cash-flow tool that can provide nonprofits with access to unrestricted funds in uncertain financial environments. 

During the COVID-19 pandemic, the Southland Development Authority invested heavily in compliance and regulations to leverage our American Rescue Plan Act contracts with the Cook County Bureau of Economic Development to secure multiple lines of capital from both commercial banks and community development financial institutions dedicated to supporting the nonprofit sector. I believe that more nonprofits must begin developing asset acquisition plans to open new potential sources of working capital. 

A New Path Forward

There’s no silver bullet strategy for nonprofits, but we understand that action must be taken to survive today's uncertainty. Even with immediate action, the structural and policy issues at hand may take years — or even decades — to fully resolve. To move forward, many communities — nonprofits in particular — must leverage innovation, strategic partnerships and effective use of resources to adapt and survive this new, less forgiving funding environment.

The preceding content was provided by a contributor unaffiliated with NonProfit PRO. The views expressed within may not directly reflect the thoughts or opinions of the staff of NonProfit PRO.