Planning Through Uncertainty: A Simple Risk Framework for Nonprofit Financial Health
Planning Through Uncertainty: A Simple Risk Framework for Nonprofit Financial Health
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 new data from the Urban Institute 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.
Why Financial Risk Planning Matters Now
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.
Three Metrics to Assess Your Financial Risk
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 Revenue
Thresholds: ✅Healthy = >0%, ⚠️Caution = 0% to -10%, 🚩At Risk = < - 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: ✅Healthy = >6 months, ⚠️Caution = 3-6 months, 🚩Vulnerable = <3 months
Example:
Unrestricted Net Assets = $150K
Expenses = $950K
Monthly costs = $79K
$150K ÷ $79K = 1.9 months
Plain 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:
- What percentage of the program is funded by at-risk sources? (✅Low risk = <30% / ⚠️Moderate Risk = 30-60% / 🚩High Risk = >60%)
- Could the program continue if that funding went away?
- 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.
Mapping Your Risk Profile Visually
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.
Next Steps Based on Your Risk Profile
Whether your risk profile is stable or urgent, here are five steps to help focus your planning and resource allocation:
- Recheck Your Priorities
Refocus on your most essential outcomes and purpose. Not everything you’re doing now needs to continue.
- 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.
- Adjust Annual Goals
Be realistic. If your capacity or context has changed, your targets should too. That’s not a failure, it’s strategy.
- 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.
- 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.
Looking Ahead
This post introduces the first in a broader series focused on helping nonprofit teams navigate complexity with clarity and confidence. Future topics will include:
- Scenario planning for nonprofit leaders
- Modeling program revenue and earned income potential
- Rethinking your operating model
- When and how to explore strategic partnerships or mergers
If 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
Christophe Poirrier is a co-founder at Two Five One Consulting. He brings years of experience in organizational strategy, mergers & 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 www.twofiveone.consulting.