Editor's Note: A version of this post originally appeared at the ASU Lodestar Center Blog as part of their Research Friday series.
we work with clients, provide workshops, and present on nonprofit finance issues
across the country, one question pops up again and again: how much cash cushion
should a nonprofit have? One of my NFF colleagues recently explained why the answer is
different for every organization and depends on
a number of factors. One rough benchmark often cited recommends nonprofits have
enough cash to sustain operations for at least three months. Having less than
one month of cash at your disposal is generally considered a cash crisis.
finds that organizations holding three to six months of cash have an easier
time thinking long term and building up reserves: a rainy day fund, facility
reserves, etc. Organizations with reserves are better prepared for an emergency
(major building repairs, loss of a primary funding source, severe economic
upheaval) and in a crisis it’s more likely that they can continue providing
their services uninterrupted.
this year, nearly 2,000 nonprofit leaders completed our annual State of the
Sector Survey. One
question asked was, “How much cash (including reserves) does your organization
have readily available?” Nationwide, 9% of the social service providers who responded
reported having “0 months” of cash. Another 20% had enough to cover 1 month of
expenses, while 34% reported that they had “2 - 3 months” of cash on hand. So
the results seem to say that just about a third of social service agencies are experiencing
a cash crisis, another third are managing, and the remainder has a comfortable
practice, however, our consultants see a very different picture. Read More