When Federal Funding Disappears, the Problem Isn't Always the Money
In early 2025, a third of nonprofits reported direct federal funding disruptions.1 By year end, 85% said the broader funding environment had affected them in some way.2 Grant terminations, payment freezes, stop-work orders, and a 43-day government shutdown that left organizations scrambling to cover payroll from reserves they didn't have. The cases that made the news were the most dramatic ones. The organizations that didn't make the news were dealing with the same pressure, just without an audience.
What separated the ones holding steady from the ones in freefall wasn't always how much money they lost. Some organizations lost relatively little and are still struggling. Others absorbed significant cuts and kept operating. The difference, when you look closely, tends to be structural rather than financial.
The questions nobody was asking before January 2025
Most nonprofit leaders understand their funding situation in broad strokes. They know which grants are up for renewal, roughly how much federal money flows through the organization, and whether last year ended in surplus or deficit. What most didn't have, before the disruptions hit, was a live picture of what their financial position looked like under stress.
What happens to cash if one major grant doesn't renew? At what point do reserves start getting drawn down, and how long do they last? If federal reimbursements are delayed 90 days, can the organization make payroll? Where is revenue most concentrated, and what does that concentration actually mean in a bad year?
These aren't complicated questions. They're standard financial management. But in most nonprofits between $5M and $20M, nobody owns them consistently. The executive director cares about the finances, but is spread across too many other priorities to stay on top of the detail. The board treasurer reviews what already happened at quarterly meetings. The bookkeeper keeps the records accurate and current, but isn't there to model scenarios or tell the leadership team what cash runway looks like under two or three different revenue assumptions.
That structure is normal for an organization at that stage. It's not a failure of leadership. It's just how nonprofits tend to grow, and until recently, it worked well enough. Federal funding was relatively predictable. Multi-year grants renewed. The worst case was a slow fundraising year, not a sudden termination notice. That's not the environment anymore.
What the numbers actually say
The financial picture going into 2026 is worth looking at directly, because most nonprofit leaders are managing pieces of it without seeing the full combination.
52% of nonprofits currently have three months or less in cash reserves, according to the Nonprofit Finance Fund's 2025 survey.3 For those organizations, a payment delay of 90 days isn't a stress, it's a crisis. It triggers immediate decisions about which staff to keep, which programs to cut, and whether to take on debt. Three months of reserves sounds like a buffer. Against a 43-day government shutdown followed by months of processing backlogs, it isn't much of one.
At the same time, health benefit costs are projected to rise 6.7% in 2026, the steepest increase in 15 years, according to Mercer's 2025 National Survey of Employer-Sponsored Health Plans covering more than 2,000 organizations.4 Over the prior decade, annual increases averaged around 3%. The compounding effect of three years running above that baseline is already showing up in budgets that weren't built to absorb it.
Neither fact, on its own, is catastrophic. Together, alongside the most volatile federal funding environment in decades, they describe an organization that needs someone actively managing the financial picture, not reviewing it four times a year.
The gap that's now expensive
In a nonprofit engagement, the financial leadership structure usually looks some version of the same way. An executive director functioning as the de facto CFO, reviewing invoices and fielding questions from funders that should go to a financial officer. A board treasurer who is diligent but working from reports prepared by staff rather than building the analysis. A bookkeeper or staff accountant keeping the transactions clean and the books current.
That team can manage a nonprofit in stable conditions. What it doesn’t do is run scenario models, identify concentration risk before it becomes a crisis, negotiate with funders when revenue assumptions change mid-year, or sit across from an auditor and defend the organization's financial management practices in technical detail. Those things require a different level of financial judgment, and they require someone with the time and mandate to stay on top of them between board meetings.
The fractional CFO model exists because most organizations at this size don't need that capability full time. They need it consistently. There's a real difference between having a financial strategy conversation once a quarter and having someone whose job is to watch the indicators, ask the hard questions, and flag the problem before it becomes an emergency.
The organizations that came through 2025 in reasonable shape generally had some version of that coverage. Not always a formal fractional CFO. Sometimes a capable finance director with the bandwidth to do real financial planning alongside the operational work. But someone whose job included the forward-looking questions, not just the backward-looking ones.
The organizations still working through the damage often didn't.
What this means for the rest of 2026
The funding environment isn't returning to what it was. Federal funding for domestic programs has faced a combination of proposed cuts, enacted reductions, and administrative actions that have left most nonprofit-serving programs at or below prior-year funding levels in real terms. The private grant market is more competitive than it has been in years because organizations that lost federal funding are now competing for the same philanthropic dollars that were already fully committed.
That's the operating environment for the foreseeable future, not just this year.
The organizations that navigate it well aren't necessarily the ones with the best funding relationships or the most diversified revenue. They're the ones that build the financial infrastructure to see what's coming, model what it means, and make decisions on real numbers rather than optimistic assumptions.
That infrastructure doesn't have to be expensive. But it has to exist.
If your organization is heading into the second half of 2026 without a clear picture of your cash runway, your reserve position relative to your actual risk exposure, or what your financial picture looks like under two or three different funding scenarios, that's worth addressing now rather than when something forces the conversation.
I work with nonprofits on exactly that kind of diagnostic engagement. If it's useful to talk through what that looks like for your organization, I'm happy to have that conversation.
Atisha Burks is the Founder and Principal of AnchorPoint Rising, LLC. She works with nonprofits, associations, and government contractors as a fractional CFO, drawing on 24 years of senior federal executive experience across DHS, DoD, the U.S. Coast Guard, and the Department of Commerce.
1. Urban Institute, How Government Funding Disruptions Affected Nonprofits in Early 2025, October 2025 https://www.urban.org/research/publication/how-government-funding-disruptions-affected-nonprofits-early-2025
2. Instrumentl, The New Funding Rush: How Nonprofits Are Racing to Adapt Amid Federal Grant Changes, October 2025 https://www.instrumentl.com/blog/federal-funding-changes-report
3. Nonprofit Finance Fund, 2026 Nonprofit Trends, February 2026, citing the NFF 2025 survey https://nff.org/insights/2026trends/
4. Mercer, 2025 National Survey of Employer-Sponsored Health Plans, November 2025 (2,010 employer respondents, fielded June through August 2025) https://www.mercer.com/en-us/about/newsroom/employers-and-workers-face-affordability-crunch-as-health-insurnace-cost-is-expected-to-exceed-18500-per-employee-in-2026/
