Blog

<h2>Planning Through Uncertainty: A Simple Risk Framework for Nonprofit Financial Health </h2>There’s no shortage of uncertainty in today’s nonprofit landscape. Costs are up, public funding is shifting, and revenue projections are harder to trust. For nonprofit leaders navigating these conditions, planning feels more critical and more difficult than ever.Last month, we shared <a data-mce-href="https://www.urban.org/research/publication/what-financial-risk-nonprofits-losing-government-grants" href="https://www.urban.org/research/publication/what-financial-risk-nonprofits-losing-government-grants" target="_blank" rel="noopener">new data from the Urban Institute</a> showing that 60 to 80% of nonprofits could face budget shortfalls if government grants disappeared. That sparked important conversations with nonprofit teams trying to understand what that risk looks like in their own organization: How exposed are we, really? What happens if a key source of funding doesn’t come through? Where do we start?This post offers a simple, practical framework to begin answering those questions. While we’ve used the potential loss of government funding as a prompt, the same logic applies to any major funding source your organization depends on.The goal here is not to reforecast your entire budget, but to help your team quickly take stock of financial risk and understand where you’re vulnerable. From there, you can move toward smart, focused decisions using strategic planning, budgeting, or scenario modeling.<h3>Why Financial Risk Planning Matters Now</h3>Most nonprofits already do some form of budgeting and annual planning. But when external conditions are uncertain, static plans aren’t enough. To navigate real-time volatility, organizations need a sense of how much financial risk they’re carrying and how long they can sustain it.That’s especially important if your team is considering difficult choices around staffing, programs, or delivery models. These aren’t just budget conversations. They’re mission conversations. And they’re easier to have when you’re grounded in the numbers.<h3>Three Metrics to Assess Your Financial Risk </h3>You don’t need a CFO or a dozen spreadsheets to understand your financial position. Start with three basic indicators:Note: Thresholds below are general guidelines. Consider adjusting them for your sector (e.g., human services vs. arts organizations)1. Operating Surplus Without Your Most Vulnerable Funding Source This metric shows how dependent you are on a particular stream of revenue. In our example, we focus on government grants, but again, you can plug in any source, such as a major donor, foundation, or contract.Formula: (Total Revenue – At-Risk Funding – Total Expenses) ÷ Total RevenueThresholds:&nbsp;✅Healthy = &gt;0%,&nbsp;⚠️Caution = 0% to -10%,&nbsp;🚩At Risk = &lt; - 10%Example: Total Revenue = $1M Government Grants = $400K Expenses = $950K Surplus w/o grants = ($1M – $400K – $950K) ÷ $1M = –35%Plain English: If that grant disappeared, you’d be running a 35% deficit.2. Financial Runway (Months of Reserves) This tells you how long your unrestricted net assets could cover operating costs if new revenue stopped coming in, or how long you could keep the lights on?Formula: Unrestricted Net Assets ÷ (Annual Operating Costs ÷ 12)Thresholds:&nbsp;✅Healthy = &gt;6 months,&nbsp;⚠️Caution = 3-6 months,&nbsp;🚩Vulnerable = &lt;3 monthsExample: Unrestricted Net Assets = $150K Expenses = $950K Monthly costs = $79K $150K ÷ $79K = 1.9 monthsPlain English: If new revenue stopped, you’d have about 2 months to adjust.3. Program-Level Funding Risk Some programs are more dependent on at-risk revenue than others. Identify which programs are heavily reliant on government or restricted funding, then ask:&nbsp;- What percentage of the program is funded by at-risk sources? (✅Low risk = &lt;30% / ⚠️Moderate Risk = 30-60% / 🚩High Risk = &gt;60%) &nbsp;- Could the program continue if that funding went away? &nbsp;- Are there alternative delivery models that would be more sustainable?We often recommend building simple program-level income snapshots. You don’t need to model every line, just enough to test basic “what if” scenarios.<h3>Mapping Your Risk Profile Visually </h3>Once you’ve calculated your surplus and your financial runway, you can map your organization on a 3-by-3 grid (pardon the jargon - I can’t ignore my roots at Accenture and need a grid). One axis reflects your operating margin (excluding at-risk funds), the other your months of reserves.This is a useful tool for internal alignment. It gives you a way to quickly describe your financial posture (e.g., secure, cautious, or vulnerable) and begin prioritizing actions.You can use this matrix at the organizational level or repeat the analysis by program, department, or major funding stream.<figure id="figure-5l2ndixmlmbi7xy28"><img id="5l2ndixmlmbi7xy28" src="https://cdn.durable.co/blocks/eMdwGozfWCkvCJUOiK8UEUmeyOiaRaJo9rlWpucq9EvKocBPLc4GpgS5WsQVc5mq.png" alt="" title="" class="object-cover bg-gray-100 rounded-sm md:rounded-md lg:rounded-lg" style="aspect-ratio: 16/9; object-position: 75% 10%;" data-corners="default" data-aspect="16:9" data-caption="" data-positionX="75%" data-positionY="10%" data-fullWidth="false"/></figure><h3>Next Steps Based on Your Risk Profile </h3>Whether your risk profile is stable or urgent, here are five steps to help focus your planning and resource allocation:&nbsp;- Recheck Your Priorities Refocus on your most essential outcomes and purpose. Not everything you’re doing now needs to continue.&nbsp;- Scenario Plan Strategically Explore what-if scenarios using key variables: revenue drops, grant delays, or rising costs. You don’t need to plan for every future, just the most likely ones.&nbsp;- Adjust Annual Goals Be realistic. If your capacity or context has changed, your targets should too. That’s not a failure, it’s strategy.&nbsp;- Rethink Your Fundraising Strategy Clarify your funding gaps and timeline. Identify opportunities to convert restricted to flexible revenue or explore new earned income ideas. If you need dollars quickly, focus on what’s familiar, fast-moving, and aligned with your mission.&nbsp;- Learn with Peers You’re not alone. Compare notes with others navigating similar challenges. Share what you’re trying and what’s working.You can also explore more ideas in our fundraising, planning, and capacity-building services at twofiveone.consulting/services.<h3>Looking Ahead </h3>This post introduces the first in a broader series focused on helping nonprofit teams navigate complexity with clarity and confidence. Future topics will include:&nbsp;- Scenario planning for nonprofit leaders &nbsp;- Modeling program revenue and earned income potential &nbsp;- Rethinking your operating model &nbsp;- When and how to explore strategic partnerships or mergersIf any of these resonate, we’d love to hear from you. And if you’re already deep in this work, we’d love to know what tools or practices are helping.Thank you for all you’re doing, especially now.About the Author <a data-mce-href="https://www.linkedin.com/in/christophepoirrier/" href="https://www.linkedin.com/in/christophepoirrier/" target="_blank" rel="noopener">Christophe Poirrier </a>is a co-founder at <a data-mce-href="http://www.twofiveone.consulting" href="http://www.twofiveone.consulting" target="_blank" rel="noopener">Two Five One Consulting</a>. He brings years of experience in organizational strategy, mergers &amp; acquisitions, financial modeling, and scenario planning. At Two Five One, he brings his business and strategy consulting experiences and partners with nonprofit fundraising and capacity building experts (see our team). They work alongside nonprofits to build resilience and act on what matters most. Learn more about our work at <a data-mce-href="http://www.twofiveone.consulting" href="http://www.twofiveone.consulting" target="_blank" rel="noopener">www.twofiveone.consulting</a>.

Planning Through Uncertainty: A Simple Risk Framework for Nonprofit Financial Health

Most nonprofit leaders aren’t planning to merge their organization.&nbsp;But whether or not a merger is on your radar, there’s a strong case for building what we call merger muscle memory or reflexes: the habits, practices, and strategic posture that make your organization capable of navigating those conversations when the time is right.Because while mergers often surface during moments of change (a funding shift, a leadership transition, or an unexpected opportunity with a peer organization), the organizations that navigate them most effectively are the ones that have been building that muscle into their regular planning rhythms.<h2>Merger Readiness Is a Form of Strategic Discipline</h2>There’s a common (and outdated) perception that mergers only happen when one organization is struggling (and indeed, survival might be a viable reason to consider and engage in a merger). But some of the most successful nonprofit mergers are led by healthy, mission-driven organizations who see a chance to do more together than they could alone.Being merger-ready isn’t about planning for failure. Nor does being ready for that conversation mean you’re actively looking to merge. It’s staying open to strategic possibility, protecting your mission’s future, and leading with clarity, especially in the face of change.The similar logic - and planning muscles - applies to other partnerships.&nbsp;One of the best places to start building those reflexes? Very subtle updates to your annual planning cycle.<h2>Building Merger Reflexes Into Your Annual Strategy Cycle</h2>You don’t need a dedicated “merger plan” to be merger-ready, nor do you need a consultant modelling out dozens of scenarios. Just layer a few intentional habits into the strategic planning and goal-setting processes you already hold each year:<h3>1. Put Strategic Partnerships on the Annual Agenda</h3>Set aside time each year (during a board retreat or an annual planning session) to step back and explore your appetite for strategic collaboration. Normalize the practice of asking:<ul><li>What kinds of partnerships would make our work stronger or more sustainable?</li><li>If a promising partner approached us tomorrow, how would we evaluate the fit?</li><li>Are we open to sharing leadership, infrastructure, or visibility when it serves the mission?</li></ul>These questions aren’t about committing to a merger, they’re about cultivating a leadership posture that’s open, aligned, and future-facing. And it builds shared vocabulary so your leadership team isn’t starting from zero if a real opportunity arises.<h3>2. Map the Ecosystem as an Input to Planning Activities</h3>During your annual planning process, make it a habit to map your organization's place in the broader field:<ul><li>Who else is serving the same population or addressing the same root issues?</li><li>Where is your impact unique, and where might you be duplicating effort?</li><li>Are there gaps in services, regions, or partnerships that you’re well-positioned to fill?</li><li>Are there opportunities to align services or strengthen back-end operations?</li></ul>This type of landscape scan isn’t just useful for potential partnerships, it’s a critical input for strategy, funding, and program design. The clearer you are about your niche, the more prepared you’ll be to collaborate (or consolidate) from a position of strength, with clarity.<h3>3. Keep an Updated Organizational Snapshot on Hand</h3>Once a year, refresh a simple, internal one-pager that captures:<ul><li>Mission and theory of change</li><li>Core programs and impact</li><li>Revenue and funding mix</li><li>Org chart and staffing structure</li></ul>Chances are, most of this already exists in some form. You’re just formalizing it. Update it annually so that you're ready when funders, partners, or potential collaborators ask, “Can you send me something about your work?”&nbsp;It also doubles as a strong internal alignment tool, keeping staff and board grounded in the essentials.&nbsp;<h3>4. Build and Maintain Peer Relationships</h3>This might be the most important reflex of all. And you’re likely already doing &nbsp;80% of it for a different purpose.&nbsp;Most merger or integration conversations don’t start in formal settings. They start between leaders who know and trust each other.Make it a point each year to connect with 5–10 peer EDs or senior leaders, especially those doing adjacent work. These conversations don’t need a formal agenda. Just connect, stay curious, and keep the door open.These relationships matter even if you never merge. We’ve seen many small nonprofits reach a crossroads when a founder wants to step back and no clear successor is in place. &nbsp;In many of those cases, formal succession planning hasn’t led to a clean transition, either because there’s no clear internal candidate or because the board lacks the capacity for a major hire.In those moments, peer connections often become lifelines. Subsequent conversations with peers may raise any of the following:&nbsp;<ul><li>Could you take on this program?</li><li>Could your infrastructure support this team?</li><li>Could our missions continue under a shared banner?</li></ul>An outcome might be shared services, program transitions, or informal integrations that protect the work without forcing a full organizational merger.If you’ve built those relationships and laid the groundwork, you’ll be far better equipped to navigate that kind of change without panic.And again, you are probably already meeting with these peers organically.<h2>What Gets in the Way of Merger Readiness?</h2>Even the most thoughtful leaders can find it hard to build merger reflexes. The barriers aren’t about intention, they’re often structural, cultural, or just the realities of the responsibilities.Here are a few common blockers, and some simple ways to work around them:Busyness: &nbsp;Annual planning often gets reduced to firefighting or budgeting. Try this: Add one strategic conversation prompt &nbsp;(like partnership potential or leadership transitions) to your existing planning agenda. You don’t need a retreat, just a 20-minute pause.Fear of Perception: &nbsp;Even mentioning “merger” can feel like you’re signaling instability.Try this: Frame the conversation as exploring “strategic partnerships and growth pathways.” Language matters. The goal is to stay proactive, not reactive.&nbsp;Lack of Incentives: &nbsp;Funders don’t always reward behind-the-scenes strategic discipline. Try this: Document and share your reflex-building activities as signs of thoughtful leadership. Make them visible in grant reports or updates. Many funders value quiet rigor more than we assume.Board Uncertainty: Some boards aren’t used to discussing collaboration, let alone integration. Try this: Introduce “what-if” scenarios during routine governance conversations: &nbsp;“If a like-minded org approached us, what would we want to know? What would we ask?”The good news? You don’t need a sweeping initiative to overcome these. Subtle, consistent shifts reduce the friction and build merger exploration and readiness into the fabric of how your organization thinks, plans, and leads.<h2>Merger Reflexes Are About Readiness, Not Commitment</h2>Being prepared for a merger doesn’t mean you’re pursuing one. It means you’ve built the habits, clarity, and relationships to evaluate and move thoughtfully when a moment of opportunity (or necessity) arises.These reflexes are part of being a well-run organization. And like any muscle, they’re easiest to build when things are steady, when you have the space to think big, ask real questions, and plan beyond survival.So no, you don’t need to plan a merger.But you should still be ready, through subtle updates to existing planning reflexes.<h2>Considering a Nonprofit Merger Now? We Can Help.</h2>If you’re actively exploring a merger or partnership, we have resources to support you, from due diligence and planning frameworks to decision-making guides and board conversation prompts. We’re also happy to connect you with nonprofit lawyers, accountants, and foundations that specialize in funding or facilitating merger efforts.Reach out for the Merger Reflexes Checklist featured in this article, or let us know how we can support your next strategic move.Christophe Poirrier is the co-founder of Two Five One Consulting, where he helps nonprofit leaders strengthen their strategy, operations, and fundraising capacity. Before launching Two Five One, Christophe spent nearly two decades in the private sector, leading a range of M&amp;A, partnership, and organization design and restructuring efforts at firms like Accenture and Vanguard. While the context is different, many of the same strategic muscles apply, and that’s what Two Five One is all about: blending deep nonprofit expertise with business discipline to help organizations lead with clarity and confidence.Find <a data-mce-href="https://medium.com/@Christophe_8737/not-planning-a-nonprofit-merger-great-heres-why-you-should-still-build-merger-reflexes-564e5d825b7c" href="https://medium.com/@Christophe_8737/not-planning-a-nonprofit-merger-great-heres-why-you-should-still-build-merger-reflexes-564e5d825b7c" data-mce-selected="inline-boundary">this article</a> and other publications on medium.com

Blog

Planning Through Uncertainty: A Simple Risk Framework for...

Not Planning a Nonprofit Merger? Great. Here's Why You Sh...