Grants and funding streams are shifting faster than annual budgets can keep up. Not-for-profit organizations cannot predict every disruption, but they can decide how they will respond before financial pressure forces the issue. Scenario planning provides a practical way to do that.
What happens if a major grant is delayed or reduced? What if costs increase faster than funding? What if a major donor stops giving or a signature event falls short? These questions are the foundation of scenario planning: considering more than one possible future and determining how the organization would respond.
In our experience, organizations are better positioned to navigate disruption when management and the board discuss these possibilities in advance. The objective is not to predict the future perfectly. It is to understand the organization’s risks, identify available options and make difficult decisions before they become urgent.
According to the Nonprofit Finance Fund’s 2025 State of the Nonprofit Sector Survey, 85% of nonprofits expected demand for services to rise, 36% ended 2024 with an operating deficit and 52% reported three months of cash or less.
Government funding adds another layer of uncertainty. According to the Urban Institute’s analysis of government funding disruptions, published October 14, 2026, 49% of nonprofits receiving government funding experienced at least one disruption in 2025, equivalent to 35% of nonprofits overall. Nearly half of organizations experiencing delays, pauses or freezes had at least one disruption lasting 12 weeks or longer. Smaller organizations were particularly vulnerable when funding was lost, with 29% of the smallest organizations that lost government funding losing 50% or more of their revenue.
Individual giving is changing as well. Data from the Fundraising Effectiveness Project show that total dollars donated increased approximately 5.0% in 2025 while the number of donors declined 3.6%, the fifth consecutive year of donor decline. Fewer donors providing larger gifts can make overall fundraising results appear strong even as the donor base contracts.
Together, these trends reinforce the need for organizations to understand their liquidity, revenue concentration and exposure to funding disruptions.
For many not-for-profits, a practical approach is to model three possibilities over the next 12 to 24 months:
Management can then evaluate how each scenario affects cash flow, reserves, staffing and programs. The key question is not simply, “What happens to our budget?” It is, “What would we do?” The value comes from turning possibilities into decisions.
Scenario planning works best when organizations understand the difference between revenue and available cash. Revenue may be recognized before the related cash is received, depending on the nature and terms of the underlying contribution, grant or contract. Donor-restricted funds are not necessarily available for general operations.
One useful measure is months of operating reserves, which compares available liquid resources with average monthly operating expenses. While appropriate reserve levels vary, three to six months of operating expenses is a common starting point. Organizations with concentrated revenue, reimbursement-based contracts or unpredictable funding may consider maintaining greater liquidity. See Giving Arc’s discussion of nonprofit operating reserves for additional discussion of reserve considerations.
Boards and management should monitor operating cash and reserves, funding delays, fundraising performance, donor retention, program demand, staffing costs and revenue concentration. Predetermined thresholds can prompt discussion or action before conditions become urgent.
Effective scenario planning connects financial information with governance. In our experience, that means defining responsibilities, monitoring key indicators and considering in advance the actions management and the board may take if conditions deteriorate.
The goal is straightforward: know the numbers, understand the risks and identify potential responses before circumstances dictate them. Organizations may not predict the next disruption correctly, but they can be prepared to respond.
Our Not-for-Profit Advisory and Audit teams can help organizations translate scenario planning into practical financial and operational decisions. Our professionals can help management and boards evaluate risks, stress-test financial scenarios, assess liquidity and reserves, strengthen internal controls and governance and consider the financial reporting implications of changing conditions. With experience serving not-for-profit organizations, we can help organizations better understand their financial position, anticipate challenges and make informed decisions while remaining focused on their mission.
If you would like to discuss how scenario planning applies to your organization, contact Tom Gasparano, CPA at [email protected].
Charitable Contributions For 2026, donors who itemize may claim a tax deduction for contributions of cash of up to 60% of AGI and for contributions of noncash assets held more than one year, up to 30% of AGI. The OBBBA made the 60% ceiling for cash gifts to public charities permanent. Donation amounts in excess…
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