.png)
Late Friday evening on May 2, 2025, the National Endowment for the Arts began sending grant termination notices. Over 377 organizations received emails that night. Cornerstone Theater Company in Los Angeles lost $40,000. Studio Two Three in Richmond lost $30,000. Grants already awarded, already budgeted, already spent on staff and programs—terminated with immediate effect.
(Source: NPR, "NEA hit with grant cuts," May 3, 2025)
These weren't the only cuts. In 2025, the federal government terminated nearly $400 million in AmeriCorps grants, rescinded $500 million in Justice Department funding, and froze payment systems without warning. Organizations that spent their own money first, expecting federal reimbursement later, couldn't access funds for work they'd already completed.
If your organization is among the ~35,000 U.S. nonprofits that get more than half their funding from government grants, you’re currently in a more vulnerable spot than you might realize. Among those that rely on government funding, 60–80% would run a deficit if that funding disappeared. Even if your grants come from state or local agencies, it’s worth tracing the source. In many cases, those dollars originate at the federal level and are passed through, meaning a federal funding shift can ripple down to you, sometimes with a 6–18 month delay.
If you’ve already been hit by these cuts, you’re likely deep in your end‐of‐year fundraising trying to close the gap. But once you get through December, it’s time to look ahead to 2026 and build a defense so you’re better prepared if this happens again.
Here’s what the headlines miss: you’re not powerless. Yes, federal funding will continue to face pressure. But you can build a stronger position starting today. It begins with understanding your revenue mix, identifying where you’re vulnerable, and taking steps before the next crisis hits.
Why Your Revenue Mix Matters More Than You Think
Financial experts say no single funder should provide more than 15-20% of your budget. That's the ideal. Most organizations can't hit that target. The Nonprofit Finance Fund's 2025 survey found that 52% of nonprofits have three months or less in cash reserves, and many depend heavily on one or two major funding sources just to survive.
But here’s what the research shows: if you get more than 50% of your revenue from government sources, you’re in serious trouble when cuts occur.
The math is simple and harsh. Suppose government grants make up 60% of your budget. Then one Friday afternoon you receive an email (like the arts organizations above) that the grant is gone. You have 30 days to figure out which staff to lay off, which programs to cut, whether you can make rent next month.
The good news: whether or not you’re currently diversified in revenue, it’s never too late to start. Preparing now will make your organization stronger no matter what happens. What your ideal mix looks like depends on your nonprofit’s size.
If Your Nonprofit's Budget Is Under $1 Million
You’re in the majority. About 92% of all nonprofits fall into this category. At this size, build a base of flexible funding first. Here's what that can look like:
- Individual donors: 35-50% of your budget. These gifts form your foundation. Prioritize monthly recurring donors, major donors who believe in your mission beyond a particular program, and annual campaigns that build community ownership. Work to ensure these gifts support general capacity, not specific programs. This gives you flexibility to use funding where you need it most.
- Foundation grants: 20-30%. Look for general operating support, not just restricted grants. You need money that allows flexibility and responsiveness to your community's needs.
- Government grants: keep them at 10-20%. I know this seems low and you might be tempted by a federal grant worth 40% of your budget—that’s understandable. But if you take it, be clear‐eyed about the risk: budget as if that money could disappear, don’t hire permanent staff if you can’t guarantee you’ll keep them, and don’t make multi‐year commitments based solely on renewal assumptions.
Most importantly: build reserves that align with the risk. If 40% of your budget comes from one government source, then aim for at least six months of operating reserves.
- Earned revenue: 15-25%. Program fees on sliding scale, training workshops, consulting services, social enterprise—whatever aligns with your mission. If you serve communities over time, you can ask for support. These modest offerings can add up.
- Corporate support: 5-15%. Many nonprofits don’t have strong corporate giving yet. And yes, corporations can be harder to secure. But if you’re an established community organization, it’s worth reaching out to local businesses, making a yearly ask, offering them meaningful visibility. Do it even if you’re not currently running an annual appeal.
The key: Maintain three or four strong revenue streams. Choose the right ones for your size and focus on doing them well.
Your action steps:
- Run this scenario: your largest government grant disappears tomorrow. Can you make payroll for three months? Six months? If not, that grant is too large relative to your risk.
- Critical principle: if you proceed with heavy dependency on one revenue stream, increase your reserves accordingly. The more concentrated your revenue, the deeper your reserves should be.
- If you have no reserves, build one month’s worth of operating expenses this year. That single month can mean the difference between weathering a disruption and closing your doors.
If You're Growing Fast ($1-5 Million)
This is a thrilling place to be—and also one that’s especially risky. Here’s why: you’re large enough to take on major opportunities, but you may not yet have the reserves to sustain a serious disruption. It’s exciting and, frankly, a little terrifying.
Understanding your cascade risk matters here: Before we talk about revenue mix, you should map how government funding actually flows to you. Do you receive state or local funds that originate from federal sources? If yes, you may experience cuts right away, or sometimes after a 6–18 month delay when federal funding is reduced. For example: when funding from the Centers for Disease Control and Prevention to state health departments drops, those state agencies will reduce contracts with local organizations. Don’t wait for an email. Call your funders and ask if a cliff is coming.
Your revenue mix shifts at this stage:
- Individual donors: 30-45%. Build major gifts programs and recurring donor systems. As you scale, these relationships become more critical.
- Government grants: 20-35%. You can accept more government funding now, but watching the upper limit is vital. Above ~35% and you’re vulnerable again. One common miss: having one large contract that makes up 40% of your budget. Safer: three contracts of ~$300k from three agencies rather than one $800k contract from one agency.
- Foundation grants: 15-25%. Look for multi‐year awards so you build programs sustainably instead of scrambling each year.
- Earned revenue: 15-25%. Corporate support: 10-15%.
Your goal: build six months of cash reserves. The reality: only about 20% of nonprofits achieve this. More than half have three months or less, and nearly one in five has just one month of cash on hand.
The rule: no single source should exceed 25-30% of your budget.
Here’s the trap: A government contract worth 40% of your budget might feel transformative. You hire staff, expand programs, serve more people. Then the contract isn’t renewed and you’ve built an operation you can’t sustain. Data from 2024 shows 36% of all nonprofits ended the year with operating deficits—the highest rate in a decade. Your planning focus right now:
- Map it out. Where does your government funding actually come from? How many intermediaries are in the chain? What’s the timeline if federal cuts hit?
- Contact your funders and ask: Are cuts or changes coming?
If You're Mature and Stable ($12-30+ Million)
You’re part of the top ~3% of nonprofits in size. You have infrastructure for complex funding, and the rules shift a bit: revenue concentration can work, if done strategically.
A balanced mix at your stage:
- Government grants and contracts: 25-35% (from multiple agencies)
- Individual donors: 25-35% (major gifts, planned giving)
- Foundation grants: 15-20%
- Earned revenue: 15-25%
- Corporate support: 5-10%
- Endowment income: 5-10%
But here's the key difference: strategic concentration on reliable sources is not the same as being trapped by a single funder. Some large nonprofits now get their dominant revenue from major gifts of $10,000 or more. In 2024, 12% of large nonprofits operated this way, up from less than 2% in 2007.
Your sector also matters: human services nonprofits often get 40%+ from the government, as do many health and education organizations. These sectors would face massive deficits without government funding. Arts and culture organizations, on the other hand, tend to have more individual support and balanced mixes.
Your best practices:
- Six-plus months cash reserves minimum
- Build endowment funds
- Keep at least 50% of revenue unrestricted (though only 36% of nonprofits achieve this)
- No more than 75% from any single source
- Maintain at least four different income streams
Your unique planning challenge: You probably have reserves to weather immediate disruptions, but you must think 12–24 months ahead. When federal funding disappears, ripple effects follow. Nonprofit employees get laid off. They stop spending money in their communities. Businesses lose revenue. More layoffs follow. People who lose services end up in crisis, generating higher costs in emergency healthcare and criminal justice.
Model three scenarios:
- 10% government funding cuts over two years
- 25% government funding cuts within six months
- 50% cut to your largest single government contract
For each scenario: Which programs are most vulnerable? Which costs are fixed versus variable? What's the minimum cash needed to keep core operations running? This lets you make strategic decisions about building revenue streams before a crisis forces them.
When Federal Cuts Will Actually Hit You (And What's Being Cut)
We covered cascade risk above, but here's the timeline you need to know:
- Direct federal grants: Days to six months after federal action.
- Pass-through funding (federal to state to you): 6-18 month delay while state governments adjust budgets.
- Fee-for-service programs: Months, as rule changes phase in.
- Multi-level cascades (federal to state to local to you): Longest delays as each level adjusts.
Here are some of the 2025 cuts affecting nonprofits:
- Health and Human Services: $40 billion cut proposed (one-third of its budget). CDC would drop by $3.58 billion, a 53% cut, bringing it to the lowest funding level since the early 1970s.
- Education: $7 billion in already-appropriated funds withheld in July 2025. Another $6 billion cut proposed for K-12 spending in fiscal year 2026.
- Housing: HUD awarded $3.6 billion in Continuum of Care grants in January 2025, then delayed distributing the money for months. Proposed cuts: 40% reduction to rental assistance, 12% reduction to homelessness funding.
- Community Development Block Grants: Currently $3.3 billion supporting local infrastructure, affordable housing, and community services. Proposed for complete elimination. Every CDBG dollar leverages an additional $5.02 in other funding. When the base disappears, those multipliers reverse.
If you receive any of these funding streams, or get state/local money that originates from them, you need to know where you sit in the cascade and plan accordingly.
What You Do Next
Start with an honest assessment of your current position. Review your revenue mix over the past few quarters/years. What trends do you see? Then adjust looking forward based on your conversations with funders.
Ask yourself:
- What percentage of your revenue comes from federal sources? Over 50% = higher risk.
- Is your funding direct or pass-through? Pass‐through means extra risk.
- How many intermediaries are in your funding chain? More intermediaries = more points of failure.
- Is your funding reimbursement-based? Reimbursement funding requires solid reserves to cover cash flow gaps.
- What's your actual cash reserve position? Be honest.
Model scenarios where government funding drops:
Simulate 10%, 25%, 50% cuts. For each: Which programs are most vulnerable? Which costs are fixed (rent, insurance, core staff) vs variable (contractors, program supplies)? What’s the minimum cash needed to keep operations running?
Take action now:
- Build or use reserves if you have them. Even one month of operating expenses can make a big difference.
- Talk to foundations about bridge funding. Many understand the federal funding environment and can help.
- Speed up your individual giving programs. Unrestricted donor dollars give you flexibility other funding can’t match.
- Develop earned revenue that aligns with your mission. This takes time to build, so start now.
Looking ahead to 2026:
The proposed cuts ($163 billion in domestic discretionary spending, with some sectors facing 40-55% reductions) are bigger than anything nonprofits have dealt with before. Legal challenges continue. Final budgets for fiscal year 2026 remain uncertain.
But the 2025 mid-cycle grant terminations proved something critical: funding you thought was guaranteed can vanish overnight. If you've been hit by funding cuts in 2025, you know the pain. Use that knowledge to build something stronger for 2026. Revenue diversification used to be a best practice. Now it's a matter of survival.
The organizations that will make it through will be those that understood their exposure, built reserves that matched their risk, had real conversations with funders about what’s ahead, and took action before a crisis forced them to.
You have more control than you think. Use it.
Want help mapping your revenue mix or planning for funding shifts? Connect with our team today. We're here to support nonprofits building for the long term.