The critical role of financial reserves for organizations in uncertain times

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OPINION

By Dr Caroline Sekiwano

The recent cuts in funding to international organizations, NGOs, and government-funded initiatives following the executive orders of US President Donald Trump serve as a stark reminder of the vulnerability of donor-dependent organizations.

When major sources of funding are abruptly withdrawn, projects stall, salaries go unpaid, and essential services to communities suffer. While organizations cannot always predict political and economic shifts, they can prepare for them by ensuring they have financial reserves to sustain operations during uncertain times.

Many organizations, particularly NGOs and international bodies, rely heavily on external funding from governments, large foundations, and private donors. The US government, through its agencies and partnerships, has historically been one of the largest donors to global humanitarian and development programs.

However, changes in political leadership, policy priorities, and economic conditions have quickly altered these funding streams. The Trump administration’s executive orders cutting funding to certain international programs has forced many organizations to scale down or shut down projects, affecting millions of beneficiaries worldwide. This is not the first time such funding shifts have occurred, nor will it be the last. The lesson is clear: financial dependency without a backup plan leaves organizations vulnerable to unexpected disruptions.

To remain resilient in times of funding cuts, organizations should establish financial reserves that allow them to continue paying salaries, maintaining operations, and fulfilling commitments while seeking alternative funding sources. Financial experts generally recommend that organizations maintain reserves covering at least six months of operational expenses. This ensures they have enough funds to sustain core activities, retain essential staff, and strategize for long-term stability.

However, some organizations may aim for a twelve-month reserve, depending on their risk exposure, funding structure, and financial health. The larger the reserve, the greater the ability to withstand financial turbulence without significant operational disruptions.

While securing new donors is essential, financial sustainability requires a multi-pronged approach. Having multiple donors can help mitigate financial risks, but even organizations with six, seven, or ten donors can still face funding shortages if a major contributor withdraws.

A diversified funding base, including income-generating projects, endowments, or unrestricted funds, can provide additional stability. Organizations should not only focus on attracting new donors but also on developing self-sustaining revenue streams where possible. This could include setting up social enterprises, charging fees for certain services, or investing in income-generating assets.

Some NGOs have successfully implemented social business models, allowing them to generate revenue while continuing their core mission. Others have explored partnerships with the private sector to create shared-value initiatives that bring long-term financial security. Such strategies not only reduce dependency on unpredictable donor funding but also foster innovation and adaptability within organizations.

Another critical aspect of financial preparedness is proper financial planning and budgeting. Organizations should regularly assess their financial health and conduct risk analyses to determine potential vulnerabilities. Establishing clear financial policies and ensuring transparency in financial management can also boost donor confidence and encourage continued support. Additionally, organizations should explore flexible funding agreements that allow them to allocate funds to reserves without restrictions.

The key takeaway from recent funding disruptions is that financial preparedness should be a top priority for all organizations. Those that build reserves and plan ahead are better positioned to handle unexpected financial shocks. Establishing financial reserves provides a crucial buffer, allowing organizations to continue their work without immediate disruption when funding sources dry up.

Diversifying funding streams reduces dependency on any single donor and enhances financial security. Contingency planning ensures that organizations can react quickly and effectively when faced with financial challenges. Investing in sustainability initiatives helps create long-term financial independence.

The financial instability caused by abrupt funding cuts should serve as a wake-up call for international organizations and NGOs worldwide. Those that survive are the ones that plan ahead and develop financial resilience strategies. Funding challenges are inevitable, but with proper preparation, organizations can weather the storm and continue their vital work without disruption. Now is the time to act—before the next funding crisis hits.

The writer is a Human Resource & Organizational Development Advisor