How can you develop a contingency plan for funding shortfalls?

1 Identify potential sources of funding shortfalls

The first step is to identify the possible causes and sources of funding shortfalls for your non-profit. These could include external factors, such as changes in the economy, donor behavior, government policies, or natural disasters, or internal factors, such as staff turnover, mismanagement, or fraud. You should also assess the likelihood and impact of each source of funding shortfall on your budget, programs, and operations.

2 Establish a contingency fund

The second step is to establish a contingency fund that can cover your essential expenses for a certain period of time in case of a funding shortfall. A contingency fund is a reserve of money that is set aside for emergencies or unexpected situations. You should determine how much money you need to have in your contingency fund based on your monthly operating costs, cash flow projections, and risk assessment. You should also decide how and when you will access and replenish your contingency fund.

3 Diversify your funding sources

The third step is to diversify your funding sources to reduce your dependence on any single donor or revenue stream. Diversifying your funding sources means seeking and securing different types of funding from different sectors, such as grants, donations, sponsorships, fees, or social enterprises. You should also diversify your funding sources within each sector, such as by targeting different donors, markets, or audiences. Diversifying your funding sources can help you increase your financial stability, flexibility, and resilience.

4 Monitor your financial performance

The fourth step is to monitor your financial performance regularly and rigorously to detect any signs of funding shortfalls or problems. Monitoring your financial performance means tracking and analyzing your income, expenses, cash flow, and financial ratios. You should also compare your actual results with your budget and forecast, and identify any variances or gaps. Monitoring your financial performance can help you identify and address any issues or risks before they become too serious or costly.

5 Communicate with your stakeholders

The fifth step is to communicate with your stakeholders openly and honestly about your financial situation and contingency plan. Your stakeholders include your donors, staff, board, partners, beneficiaries, and other supporters. You should inform them about the potential sources and impacts of funding shortfalls, the measures you are taking to prevent or cope with them, and the expectations and roles they have in your contingency plan. Communicating with your stakeholders can help you maintain their trust, engagement, and support.

6 Review and update your contingency plan

The sixth and final step is to review and update your contingency plan periodically and as needed to reflect any changes in your internal or external environment. You should evaluate the effectiveness and relevance of your contingency plan, and make any adjustments or improvements based on your feedback, learning, and experience. You should also document and share your contingency plan with your stakeholders, and train your staff on how to implement it. Reviewing and updating your contingency plan can help you ensure that it is always ready and responsive.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?