Here are 5 steps to reduce your funding deficit

Mar 01, 2025

Have you prepared your 2025 budget? 

If you have, you probably started with a review of your numbers for 2024. 

Did the numbers for 2024 show a deficit? 

Nonprofit leaders are absolute masters at doing the most with the least resources, so you are probably not a complete stranger to the financial pressure brought on by a funding gap. 

One good thing I will say about a funding gap is that it forces you to critically review your programs and services, and bring your focus back to your mission and core activities and spend resources on initiatives with the greatest impact. More on that later.

For now, here are my top 5 strategies to close the funding gap before 2024 wraps up.

1. Understand Your Numbers

First figure out how you landed with a deficit to begin with. Ideally, you have been tracking your actual vs budget throughout the year so the shortfall was anticipated. 

Here are some questions to ask:

  • Did you overestimate revenue e.g. by including grants applied for but not yet awarded?
 

  • Did you underestimate program costs and operational expenses?

  • Did you rely on inaccurate data e.g. simply rolling over budget information from prior years without a critical assessment?

  • Did you fail to account for contingencies?

  • Did donors or sponsors not fulfill their commitments?
 

  • Did grantors delay in grant disbursements?
 

  • Was there an inconsistent approach to grant applications that meant that you missed some grant opportunities?

  • Were there external economic factors e.g. inflation leading to planned expenses exceeding estimates?

  • Is the deficit one-off or recurring i.e. did you invest in a new program that will continue to run, or did you invest in the capacity of the organization e.g. implementing a Customer Relationship Management (CRM) tool?

Your answers should point you in the direction of where to double down your efforts to close the gap - whether with donors, grantors, vendors or your own budgeting strategy. 

2. Trim the fat

As mentioned earlier, a funding gap can help you identify the activities that are core to your operations and eliminate discretionary spending. Sometimes, the funds you need are already within reach. Start trimming by asking these questions:

  • What are the core, non negotiable program or operational activities needed to close out 2024 with a win?

  • Can funds from lower-priority projects temporarily cover urgent needs?

  • Are there costs we can delay or eliminate for now?

3. Renegotiate vendor contracts

If you have built a solid relationship with vendors,  it doesn't hurt to ask them to adjust the pricing or payment terms to temporarily improve cash flow. This can be done by:

  • Requesting discounts or adjusted rates in exchange for continued business

  • Extending payment terms to give you some breathing room while maintaining services

  • Adjusting the scope of contracted services to better align with current budget constraints without ending contracts.

4. Harness the season of giving

Now that you know where the short is coming from, have re-prioritized expenditure, and also checked in with your vendors, it is time to go knocking. 

Whether you plan on selling products, subscriptions or re-engaging donors, this is the perfect time to capitalize on the goodwill of the season. 

Yes you just overwhelmed them with your Giving Tuesday campaign - but so what? Let's dive in:

Start with your existing donors who are already invested in your mission. This time of year is perfect for reconnecting with them by:

  • Appreciating them though small events (virtual or in person) or personalized thank you notes.

  • Highlighting the impact of their donations using data, photos, or stories.

  • Being open about your needs to help them understand the stakes.

  • Keeping them updated as you close in on your goal.

Rope in prospective donors by: 

  • Reminding them about the December 31 deadline for tax-deductible gifts to create urgency.

  • Sharing real-life examples of how your work has changed lives.

  • Encouraging small recurring gifts to reduce the friction.

  • Offering something extra like finding a donor to match contributions or providing a small thank-you gift.

5. Think Beyond Traditional Fundraising

If your usual strategies aren’t enough, how about:

  • Partnering with local businesses looking to make year-end contributions? or

  • Following up on past grant applications, and applying for quick grants?

Looking Ahead to 2025

If I had to pick one overarching reason why most small to medium non-profits end up with a shortfall, it will be because they budget to break-even rather than budgeting to leave room for reserves. 

Not all the factors causing a funding gap are within your control, but for those that are e.g. implementing a more robust budgeting process, or being consistent with grant applications, you can take proactive steps to minimize their impact and nonprofit go from funding gap to reserves.