A Nonprofit Liquidity Crisis is Brewing

Federal and state funding cuts are straining nonprofits across the country—and few organizations have a fiscal safety net in place. Data from our first annual nonprofit benchmarking survey, Nonprofit Standards, indicates that a plurality of nonprofits (40 percent) have less than six months of operating reserves (liquid unrestricted net assets) and just 20 percent have 12 months.

How does this compare to what organizations should target? The right amount of operating reserves varies depending on an organization’s size and scope, but it is recommended to establish 6 months.

 
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Developing robust reserves is a serious challenge for nonprofits that are tasked with balancing immediate programmatic needs with securing long-term sustainability. And organizations can’t rely on individual contributions to fill the funding gaps. While some high-profile charities experienced a “Trump bump,” to donations, a post-election contribution surge is the exception, not the rule.

Health and Human Services (HHS) organizations are particularly vulnerable. Nearly one-quarter of HHS organizations (23 percent) have zero operating reserves—leaving them with no contingency plan in the event of a serious disruption to their funding. For more information on benchmarking data specific to HHS organizations, check out the BDO Knows Healthcare blog.

 
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Explore the complete strategic planning section of our benchmarking survey for more insights into nonprofit challenges and future plans.