Insights from 2025 Financial Series: Reframing Financial Due Diligence - Part 2
This piece is part 2 of a two-part series. Read Part 1 today.
The resilience of the nonprofit sector has been tested amidst the phasing out of pandemic era relief funds, shifting donor priorities, and causing burnout. As major cuts are made across federal and state funding, nonprofits are coping with increased and unprecedented uncertainty. To address this climate, many in the philanthropic community are increasing support and adjusting policies and practices to support nonprofits and the communities they serve.
One essential area of support for grantmakers is building financial resilience. In Part 1 of this series, Hilda Polanco, Principal for BDO’s Nonprofit and Grantmaker Advisory, unpacked the framework of financial health and explored how grantmakers can leverage a trust-based approach to foster dialogue and tangible support for nonprofit partners.
Read on as Polanco explains how funders can start the conversation and implement concrete practices to best assist nonprofit partners as they face the unpredictable.
PART 2: Starting the Conversation
Starting a conversation to build understanding about financial resilience can feel awkward—or even intimidating—depending on your relationship with the grantee.
When engaging in dialogue with nonprofit partners, consider these starters:
- “Help us understand…”
- “We recognize the challenging environment you operate in and would like to learn more about…”
Ultimately, the goal and focus of these conversations should be understanding the needs of your nonprofit partner and determining what can be done to meet those needs. BDO’s Jennifer Pedroni weighs in:
“Find out the root cause of why they can’t access sufficient resources— what do they need?”
— Jennifer Pedroni
To assist you in understanding your grantee’s financial needs, consider the following areas of inquiry:
1. Current Financial Position
- How much cash and reserves (LUNA, Liquid Unrestricted Net Assets) are available right now?
- How many months of expenses can these resources cover?
- Does the nonprofit partner have access to a line of credit to manage cashflow, with clarity as to when and how it will be repaid?
- What percentage of the organization’s receivables are at risk of not being paid?
2. Revenue Risk and Planning
- What future funding is potentially at risk?
- What portion is government funded?
- How might non-government revenue be impacted?
- Has the organization developed plans for potential scenarios?
3. Organizational Readiness and Communication
- Does the nonprofit partner have reliable and timely financial information to navigate this period?
- How well-prepared are staff and board leaders to make difficult decisions and communicate them effectively?
Strategies for grantmakers supporting current nonprofit partners
Engaging in open dialogue allows funders and nonprofit partners to practice transparency in ways that strengthen nonprofit partners’ ability to navigate uncertainty. As executive transitions continue to reshape both the nonprofit and philanthropic sectors, funders and nonprofit partners alike are seeking tangible, immediate steps to foster stability and trust.
One powerful way funders can respond is by rethinking traditional funding practices to ensure more consistent, meaningful support.
“If you are a project funder, one lever you have is to ensure you are covering actual indirect costs, rather than placing a cap on the percentage you are willing to fund..”
— Hilda Polanco
Some helpful approaches include:
- Simplify the grantee application process: Reducing administrative burdens helps smaller and community-based organizations participate more equitably in funding opportunities.
- Increase access to unrestricted funding: General operating support allows nonprofits to allocate resources where they're most needed—whether investing in staff, strengthening infrastructure, or weathering a crisis—rather than being locked into narrow programmatic budgets.
- Support the development of operating reserves: Helping grantees build reserves isn't just smart financial practice—it’s a powerful tool for long-term stability, allowing organizations to plan for the future and navigate the unexpected with greater confidence.
- Align requirements with grant size and type: Right-sizing due diligence ensures that compliance expectations are proportionate and realistic, especially for smaller organizations that may lack extensive administrative capacity.
- Tailor policies to fit an organization’s size and function: Recognizing that a grassroots nonprofit operates differently from a large institution makes space for a more nuanced, trust-based approach to funding.
Taking these steps not only strengthens individual organizations—it deepens the kind of resilient, equitable partnerships our sector needs. By removing unnecessary barriers and centering trust and flexibility, funders can help shift the power dynamics that have long shaped philanthropy.
The result is not just more resilient grantees, but deeper, more authentic partnerships—rooted in shared purpose and mutual accountability.