Running on Empty: The Operating Reserves of U.S. Nonprofit Organizations

Research output: Contribution to journalArticle

Abstract

Operating reserves allow nonprofit organizations to smooth out imbalances between revenues and expenses, helping to maintain program output in the presence of fiscal shocks. We know surprisingly little about why nonprofits might save operating reserves and what factors explain variation between organizations' savings behavior. Findings suggest that operating reserves are reduced in the presence of concentrated public funds, access to debt, fixed assets, and endowment. However, size is not an important predictor, indicating that the lack of reserves is not limited to small nonprofit organizations but is instead a sectorwide issue. Significant numbers of nonprofits maintain no operating reserves at all. One potential explanation is that organizations discount the benefits of reserves because they are evaluated on spending, focusing instead on the "benefits of costs." This preference for spending over reserving may also help explain the general lack of liquidity in the sector beyond operating reserves alone.

Original languageEnglish (US)
Pages (from-to)281-302
Number of pages22
JournalNonprofit Management and Leadership
Volume23
Issue number3
DOIs
StatePublished - Mar 2013

Keywords

  • Empirical research
  • Financial management
  • Nonprofit organizations
  • Public charity

ASJC Scopus subject areas

  • Strategy and Management

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