How the Government Shutdown Is Putting Nonprofits at Risk — and What They Can Do Now

Nonprofits play a vital role in supporting communities with food, housing, education, and health services. Yet when the government shuts down, these organizations often find themselves caught in the middle, with payments paused, grants delayed, and demand for services rising. Recognizing how shutdowns disrupt operations can help nonprofits prepare, maintain continuity, and build resilience, strengthening their ability to thrive and sustain their missions over the long term.

What Happens to Nonprofits During a Shutdown?

A government shutdown touches nearly every part of a nonprofit’s operations, from finances to staffing to community trust. The impacts are immediate and wide-ranging, forcing leaders to make tough decisions about how to sustain programs and protect their missions. Here are some of the most common challenges nonprofits face during a shutdown:

Funding Disruptions and Cash Flow Strain

Federal agencies are unable to process reimbursements or payments during a shutdown, creating significant cash flow challenges for nonprofits. Even if work continues, invoices go unpaid, and organizations are left to cover staff, rent, and program costs out of pocket. With no certainty about when (or if) funds will arrive, nonprofits may need to dip into reserves, reduce services, or furlough staff to stay afloat.

Program and Contract Delays

In addition to funding disruptions, nonprofits also face the possibility of stop-work orders, stalled contracts, or paused grant awards. This uncertainty undermines the predictability on which nonprofits rely for planning and execution. Even existing programs may stall, leaving nonprofits without the assurance they need to continue operations smoothly.

Rising Demand, Shrinking Resources

When government operations slow, many turn to nonprofits for help — especially in critical areas like food, housing, and health services. As the government safety net falters, the demand for nonprofit services often increases, yet resources remain constrained. Families, displaced workers, and underserved populations may seek additional help from nonprofits, forcing organizations to juggle rising demand with limited capacity.

Operational Strain and Program Cuts

To stay afloat during these disruptions, nonprofits may need to reduce services or scale back operations. Cash flow disruptions may result in delayed client intakes, reduced program hours, furloughs, or even full program closures. Many nonprofits, especially those reliant on federal funds, will face tough decisions about which programs to continue and which to temporarily halt.

Erosion of Partnerships and Collaborative Work

Many nonprofits rely on partnerships with government agencies to enhance their impact. However, during a government shutdown, these partnerships often become harder to sustain, risking long-term projects and collaborations. Delays, lack of predictability, and strained coordination undermine these efforts, reducing the ability to plan and implement effectively.

Reputation, Trust, and Stakeholder Pressure

A shutdown may also strain relationships with clients, funders, and community stakeholders. Despite being outside an organization’s control, these disruptions can lead to questions about a nonprofit’s stability and responsiveness. Nonprofit leaders may face pressure to maintain services with fewer resources, leading to burnout and potential damage to the organization’s reputation.

Why the Stakes Are Higher Than Ever

Nonprofits were already operating under tight financial constraints before the current shutdown. According to the Urban Institute, about one in three nonprofits experienced some form of government funding disruption in the first half of 2025. In many cases, government contracts and grants represent a significant portion of revenue. Losing these funds can turn a stable nonprofit into a crisis-mode organization overnight.

Many of the communities nonprofits serve are already facing inflation, rising costs, and tighter private giving, meaning disruption at the federal level comes at a particularly fragile moment.

What Nonprofits Can Do Now

While nonprofits can’t control the timing of a federal shutdown, they can take proactive steps to protect their missions, mitigate risks, and position themselves for long-term resilience. Here’s how you can prepare:

1. Assess Your Exposure & Vulnerability

• Identify which programs, grants, or contracts are at risk and how central they are to your operating budget.
• Calculate your organization’s operating “runway” — how long can you continue operations if payments are delayed?
• Differentiate between mission-critical and nonessential services, recognizing which programs must continue and which can be temporarily scaled down.

2. Build or Reinforce Cash Reserves

• Prioritize building an operating reserve if you don’t already have one. Aim for 3–6 months of operating expenses.
• Use unrestricted funds or flexible private grants to cover near-term gaps.
• If possible, negotiate short-term bridging support from funders or philanthropic partners.

3. Strengthen Relationships with Funders and Partners

• Keep open lines of communication with philanthropic and government partners. Inform them of potential risks and your contingency plans.
• Ask for flexibility in your agreements — inquire about expense reallocation, timing adjustments, or bridge funding during delays.
• Review your contracts to ensure they don’t include overly rigid clauses that could result in penalties or termination during funding delays.

4. Reprioritize Services

• Focus your resources on high-impact or high-risk services, ensuring you’re meeting the most critical needs.
• Consider delaying new program launches or expansions until funding stability is restored.
• If needed, scale back services or phase in delivery to keep operations manageable.

5. Tighten Financial Controls, Forecasting & Monitoring

• Increase the frequency of cash-flow forecasting (weekly or biweekly) to better anticipate shortages.
• Delay nonessential capital or discretionary spending to protect cash flow.
• Monitor unpaid receivables and follow up regularly to stay on top of invoice status.
• Use scenario planning to evaluate different shutdown scenarios, including best-case and worst-case outcomes.

6. Advocate, Educate & Raise Your Profile

• Maintain transparency with your board by providing accurate, timely financial reports.
• Mobilize your board and leadership to engage in advocacy — reach out to representatives, share real stories, and emphasize the community impact.
• Raise awareness among your stakeholders (donors, volunteers, beneficiaries) through communications about the challenges and trade-offs you’re facing.
• Collaborate with sector networks or coalitions to amplify your voice.

7. Explore Alternative Funding & Partnerships

• Seek diversified revenue streams, including individual giving, corporate sponsorships, and local grants.
• Engage local governments or state agencies that may have more stable funding.
• Consider partnering with other nonprofits to share resources or jointly pursue alternative funding opportunities.

8. Document, Learn and Adapt

• Keep detailed records of disruptions, delays, and cost shifts to inform future planning and advocacy.
• After the shutdown resolves, conduct a post-mortem to review lessons learned and vulnerabilities uncovered.
• Update your risk management strategies and long-term plans based on these insights.

Building Resilience in Uncertain Times

The government shutdown is shaping up to be more than a political standoff. It is a test of overall resilience. For nonprofits, the challenge is real: more demand, less predictability, and constrained resources. But with prudent planning, collaboration, and adaptive leadership, many organizations can not only survive but also emerge stronger.

If you have questions about how a shutdown may affect your nonprofit’s financial health or long-term planning, contact your CRI advisor. We are here to help you evaluate risks, strengthen strategies, and protect your mission in the face of uncertainty.