Research Friday: Many Nonprofits Face Cash Crisis

posted by
Angela Francis
Senior Associate
Nonprofit Finance Fund

Welcome to Research Friday! For this week's post, we welcome Angela Francis, Senior Associate, from Nonprofit Finance Fund to discuss NFF's recently released State of the Sector survey findings. We've had a great response thus far to Research Friday, our weekly series on nonprofit research. We welcome your comments, feedback, and suggestions!

At Nonprofit Finance Fund (NFF), we use data and capital to drive our work with nonprofits and their funders nationwide. One source of data informing this work is our annual State of the Sector Survey. Earlier this year, nearly 2,000 nonprofit leaders completed the survey, and the results help us to better understand and communicate the economic reality facing nonprofit practitioners on the ground. In a previous Research Friday post, I covered some key survey takeaways on the increased demand for services in 2011, and how this is communicated to funders. This week, I want to delve a little deeper into the survey responses that we received in another key area: cash available to manage risk.

As we work with clients, provide workshops, and present on nonprofit finance issues, 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. As a rough benchmark, though, NFF recommends nonprofits should 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.

A more ideal situation is holding three to six months of cash, which makes it easier to start 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.