How does laboratory funding and money management work in grad school?
Bad things happen when a research group runs out of money. If it's a short-term cash flow problem (for instance, having to meet payroll in the aftermath of the US government shutdown of 2013), the university should be able to provide short-term funds to cover the gap. But this can come at a cost:


It may not be possible to order necessary supplies.
Travel may be restricted.
Normal operations (usage of expensive equipment, etc.) may have to be partially or totally curtailed.


However, if it's a long-term, structural problem—for instance, because the group has grown faster than grant funds to support the group—the consequences can be much more dire:


New students and postdocs can't be hired.
Support for undergraduate students (REU's, and similar programs) get cut.
Students may have to take on teaching assignments to receive their stipends.
Recently assigned students may be asked to switch into another research group.