Nonprofits face a recurring challenge when federal budget negotiations stall: the threat of a government shutdown. With the federal fiscal year beginning on October 1, nonprofit leaders must prepare for the possibility that Congress will not approve appropriations in time. The stakes are high—shutdowns disrupt funding flows, stall communications with agencies, and create uncertainty that ripples through programs and communities.
This briefing outlines what a shutdown could mean, how it may unfold, and the proactive steps nonprofit leaders should take now to safeguard stability.
Why This Matters for Nonprofits
A government shutdown is not an abstract policy debate; it is an operational risk. Federal grants and contracts are vital lifelines for many nonprofits, directly or indirectly. If agency staff are furloughed, payments may be delayed, communication channels closed, and access to federal systems restricted. Even short shutdowns can have cascading effects on cash flow, program delivery, and donor confidence.
What’s Driving the Shutdown Risk
- Budget reconciliation requirements: Congress must pass 12 appropriations bills by October 1. Each requires at least 60 votes in the Senate, demanding bipartisan support.
- Failure to reach agreement: If no bill is passed, all “non-essential” services—such as grant administration—cease until funding is restored.
- Continuing resolution (CR): Lawmakers may adopt a CR to temporarily extend prior-year spending levels. While this avoids shutdown, it often creates uncertainty in program budgets and may include selective adjustments.
What Nonprofits Should Be Watching
- Grant disbursements: Prime recipients may not receive federal payments, impacting subrecipients downstream.
- Agency accessibility: Federal staff will not be available to respond, approve, or advise during a shutdown.
- Cash flow stress: Payment delays can create immediate liquidity challenges.
- Stakeholder perception: Delays in services or funding can raise concerns among donors, partners, and communities served.
Proactive Steps for Nonprofit Leaders
1. Update cash flow forecasts
Model scenarios where federal payments are delayed. Identify which expenses are fixed, variable, or reimbursable, and plan accordingly.
2. Communicate early and often
Reach out to agency contacts now—before September 30. Develop a communication plan for board members, donors, staff, and beneficiaries to maintain trust and transparency.
3. Exercise caution with drawdowns
Draw funds in alignment with actual expenditures. If you anticipate accelerating requests, secure written confirmation from agency officials beforehand.
4. Engage in scenario planning
Prepare board-level discussions around pessimistic financial projections and options for response—such as program pacing, spending freezes, or strategic use of reserves.
5. Diversify and secure funding
Explore bridge financing, foundation advances, or accelerated donor pledges. Review insurance coverage for potential business interruption.
Bottom Line
Shutdowns are unpredictable, but preparation is within every leader’s control. By updating financial forecasts, engaging stakeholders, and planning contingencies, nonprofits can weather disruptions with resilience.
Nonprofit leaders who view a potential shutdown not only as a compliance issue but as a leadership responsibility will be best positioned to safeguard their missions and preserve trust with donors, regulators, and communities.
Ready to Take Action?
Han Group is here to help your organization prepare for uncertainty, strengthen financial oversight, and develop practical strategies to address the risks of a government shutdown. Contact us today to start building a more resilient plan for your nonprofit.
