How nonprofits can navigate revenue swings

Income volatility has always been part of a nonprofit’s existence. In today’s environment, the swings are sharper, faster and more difficult to predict. Shifting federal priorities, changing donor behavior and market uncertainty are testing the ability of nonprofit leaders to adapt. To remain resilient, organizations must move beyond reactive responses and adopt a structured approach to financial scenario planning.

Understanding the causes

Most nonprofits rely on a diverse set of income streams, including a mix of grants, memberships, investments and individual contributions. Each source behaves differently, and each carries its own risk.

In recent years, federal and state funding priorities have changed significantly, leaving some organizations without key grants they have come to rely on. Scenario planning helps nonprofits anticipate these outcomes and prepare contingency strategies for funding losses and potential renewals.

Contributions represent another unpredictable component. Donors’ capacity and willingness to give can shift quickly. Scenario planning helps nonprofits anticipate these potential issues.

From reaction to readiness

While most nonprofit leaders understand that revenue can fluctuate, many still struggle to respond effectively when it happens. The organizations best equipped to manage these disruptions are those that plan in advance rather than react under pressure.

Scenario planning allows leaders to evaluate how different financial outcomes would affect their budgets, programs and staffing. By analyzing best-case, worst-case and most likely situations, leaders can identify early-warning indicators and prioritize responses before a crisis occurs. Planning also helps prevent hasty decisions—such as across-the-board cuts or hefty membership dues—that may harm programs or morale.

Overcoming challenges

Organizations often focus too heavily on precision instead of perspective. Debating minor differences in projections consumes valuable time and can obscure the broader financial picture. A more effective approach is to emphasize directional accuracy—identifying whether revenue is trending up or down and how that trajectory affects strategic priorities.

Modern financial planning and analytical tools can simplify this process. Enterprise performance management (EPM) systems make it easier to consolidate data, apply consistent assumptions and model multiple scenarios. These tools reduce manual effort and allow leadership to spend more time interpreting results rather than building spreadsheets.

Creating a strong foundation

Although structure and agility may seem like opposites, they are complementary. Clear processes and defined responsibilities allow organizations to move fast when circumstances change.

Establishing standardized budgeting, forecasting and approval procedures helps ensure that everyone knows how decisions are made and who has authority at each stage. This reduces confusion during high-stress periods and enables more efficient execution of financial adjustments. Similarly, documenting workflows and maintaining updated standard operating procedures gives teams a roadmap to follow when responding to either surpluses or shortfalls.

Technology also plays an important role. Automating the budgeting and forecasting cycle allows staff members to focus on strategy and analysis. The goal is to make scenario planning a routine process rather than an emergency exercise.

Planning for downturns and windfalls

Effective scenario planning is not limited to managing losses. Nonprofits also benefit from planning for unexpected growth. A sudden influx of grants or contributions could create operational challenges if the organization is unprepared to scale up. When new funding arrives, leaders must balance the desire to expand programs quickly with the need to maintain long-term sustainability.

For example, hiring full-time staff may not always be the best option, as recurring salaries can become a burden if revenue declines. In these cases, temporary staffing, contracting or outsourcing can fulfill new commitments without overextending resources.

The value of peer networks

No nonprofit operates in isolation. Engaging with peer networks, attending industry events and participating in user groups provide valuable insights into how other organizations are managing similar challenges. Sharing lessons learned and innovative approaches helps organizations benchmark their approaches and avoid repeating mistakes.