It’s 2009. Do you know where your nonprofit’s reserves are? For most nonprofits, the answer is a solemn one. A new Meyer Foundation report shows that in Washington, DC, most nonprofits are living hand to mouth, thisclose from closing their doors if they don’t bring in enough funding each year.
(via press release)
A new report released by the Urban Institute and funded by the Eugene and Agnes E. Meyer Foundation in Washington, DC. found that most nonprofits in the DC area don’t have the financial reserves needed to weather the current economic crisis. The study, the first of its kind, examined the operating reserves of more than 2,500 nonprofits in the Greater Washington area, ranging in mission from soup kitchens and job training centers to schools and local arts groups.
Operating reserves-cash and other liquid assets without donor restrictions that can be tapped when income falls short of expenses-are an important indicator of an organization’s financial health and its ability to survive challenging times. The study reviewed financial data for Greater Washington’s locally-focused nonprofits over a six-year period from 2000 to 2006.
Among the report’s key findings:
- In 2006, a time of relative economic stability, nonprofits in the Greater Washington area had a median operating reserve of 2.1 months of expenses. Most nonprofit financial management experts recommend a minimum of three.
- 57% had operating reserves of less than three months of operating expenses; 28% of those had no reserves at all.
- The percentage of organizations with less than three months in operating reserves increases with size, making large organizations (those with annual budgets of $5 million or more) especially vulnerable to the economic downturn.
- Arts, culture, and humanities organizations had the highest percentage of groups with less than the minimum reserve (62%); environment and animal organizations had the lowest with 46% falling below recommended levels.
- Nearly one in six nonprofit organizations that filed tax returns in 2000 appeared to have gone out of business or had shrunk below the IRS reporting threshold ($25,000 in revenue) by 2006; these groups had lower operating reserves and were more dependent on private contributions than the organizations that survived.
For more context on this issue, check out today’s related Washington Post article, Nonprofits Imperiled By Low Reserves:
Operating reserves are especially critical for nonprofit groups because of the way they receive funds. Many rely on occasional large gifts and grants rather than a consistent stream of revenue throughout the year. If a government grant is delayed or a foundation cuts its giving, charities without reserves could be forced to reduce services, lay off staff or close.
For the full copy of the Washington Area Nonprofit Operating Reserves report, visit www.meyerfoundation.org/reserves. 
