How Non-Profits Safeguard Their Finances Against Uncertainty

Published on March 31, 2025 by Lynn Meiser, Christa Woelfel, in Firm News, Client Accounting & Advisory, Not-for-Profit

Non-profits face unique challenges in maintaining financial health and stability that can be compounded by economics situations outside of their control. Barnes Dennig Fractional Controller Brianna Kempe presented a framework to help non-profits safeguard their finances against uncertainty. Drawing from over 20 years of experience managing organizations with annual budgets ranging from $250,000 to $7 million, Kempe outlined practical strategies centered on three pillars: expense prioritization, building financial reserves, and continuing revenue growth.

Prioritize expenses with purpose and precision

“Mission is your proverbial cornerstone,” Kempe emphasized. But as she pointed out, a cornerstone means little without a stable foundation, walls, and a roof. For non-profits, this translates into balancing programmatic expenses with the necessary administrative and overhead costs that keep the organization functional.

Many non-profits operate on tight budgets, often relying on grants, donations, and fundraising efforts to stay afloat. Kempe highlighted the importance of strategic decision-making when expenses need to be cut or postponed. She recommended focusing on core programs and foundational needs rather than trying to sustain multiple struggling initiatives. “One strong and vibrant program might be better than five struggling ones,” she noted.

Kempe offered several actionable strategies for managing expenses:

• Negotiate with vendors: Many vendors are willing to provide discounts or extended payment terms when they understand the nonprofit’s mission.
• Seek non-profit-focused vendors: Resources like TechSoup offer significant discounts on software and hardware. Google Ad Grants can help offset marketing expenses.
• Review vendor relationships regularly: Many expenses have multiple sources, and requesting competing quotes on a regular basis helps to ensure the best deal. For example, an annual review of insurance coverage protects organizations from overpaying or being underinsured.
• Request in-kind donations: Leveraging donors’ skills or goods can alleviate financial pressures.

Kempe also addressed the common guideline that non-profits should allocate at least 70% of their budget to program services. However, she stressed the importance of flexibility. “This can fluctuate, especially from year to year,” she explained, emphasizing that integrity and validation from the board are key to managing this balance transparently for both donors and employees.

Build financial reserves to weather the storms

Financial reserves act as a non-profit’s safety net, or as Kempe described, “the rain barrel.” Unlike endowments, which are long-term investments, reserves are designed for short-term liquidity during periods of reduced cash flow.

Kempe outlined different methods for calculating reserves, starting with the simple “months of cash on hand” approach—dividing operating cash by average monthly expenses. For organizations with restricted funds, she recommended using LUNA (Liquid Unrestricted Net Assets) instead of a simple cash balance. This method subtracts non-liquid assets from unrestricted net assets to provide a more accurate picture of available liquidity when an organization has balances held for restricted use.

She advocated for organizations to:

• Define current liquidity: Identify the calculation method that best fits the organization—whether simple cash on hand or LUNA.
• Set reserve goals: A minimum reserve of three months is standard, but some non-profits may require more, especially if they experience seasonal income fluctuations.
• Secure board and management buy-in: Both levels must support the reserve policy and understand its role in long-term sustainability.

Kempe emphasized budgeting for surpluses instead of aiming for net-zero each year. “Yes, you are a not-for-profit, but there’s some sense in creating a budget with an operating surplus annually,” she said. Reserves should be invested wisely in low-risk, liquid assets like money market funds, ensuring accessibility when needed.

Most importantly, reserves should be used strategically: “Use them for temporary problems, not long-term structural problems,” Kempe advised, drawing a distinction between a short-term “dry spell” and a more systemic “drought.”

Continue developing and diversifying revenue streams

Beyond safeguarding existing resources, Kempe encouraged non-profits to cultivate a growth mindset. “Abundance over scarcity is important,” she said. A focus on sustainability and alignment with mission-driven initiatives ensures organizations are better positioned for long-term success.

She recommended non-profits take proactive steps to grow their revenue streams:

• Create a resource list: Catalog available foundation grants, corporate partnerships, and philanthropic organizations in the community.
• Explore impact investing: Align investments with funds that support the non-profit’s mission, enhancing both financial returns and social impact.
• Collaborate with other non-profits: Partnerships can help leverage expertise, expand reach, and increase funding opportunities.

Kempe also emphasized making relationships central to development efforts. “Planning steps for continuing development should include building relationships that maintain support year after year,” she advised.

Some actionable ideas for continuing development include:

• Review earned income: Ensure pricing on merchandise or services offsets costs and adjust as needed.
• Apply for new grants: Leverage the resource list to diversify funding sources beyond government grants.
• Utilize current donor base: Encourage long-term donors to consider planned giving in their estates, leaving a legacy that is important to them. Peer-to-peer fundraising campaigns can also expand the donor network.
• Leverage networks: Engage vendors, donors, and community members in spreading awareness and finding opportunities for collaboration.

A comprehensive approach to financial health

Kempe’s presentation provided non-profits with a clear, actionable roadmap to financial sustainability. By focusing on expense prioritization, building robust financial reserves, and fostering continuous revenue growth, organizations can position themselves to thrive despite economic uncertainties.

Her closing thoughts served as a reminder of the power of community and collaboration: “Trust that others in your network want the best for your organization.”

With sound strategies and a resilient mindset, non-profits can weather the challenges ahead—and continue delivering meaningful impact to their communities, and Barnes Dennig is here to help. Watch Brianna’s full presentation on-demand, or contact one of our non-profit pros for a free consultation to learn how we can help you fuel your mission.