DC Area's Nonprofits Lack Financial Reserves 

A new report by the Urban Institute, commissioned by the Meyer Foundation, was released last week. Washington Area Nonprofit Operating Reserves is the first report of its kind and was featured in a story in The Washington Post on June 24. The report 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. Among the 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.

One significant reason that nonprofits lack operating reserves is the emphasis put on financing programs. "Many executive directors view money they would put away for a rainy day as detracting from services they could provide now," said Rick Moyers, the Foundation's director of programs, in The Washington Post. "It's not that they're poorly managed; it's that they have this incredibly positive desire to use as much as possible to help people." 

Moyers recommends four steps to organizations that need to build their reserves. While they may be self-evident, they are especially important in this challenging economy:

1. Budget for a surplus, or a balanced budget that includes a modest annual contribution to reserves. Consistently operating at a small surplus is the most obvious way to build up adequate reserves over time.
2. Build a stronger individual giving program. Contributions from individuals can be an important source of unrestricted revenue that can ultimately help build operating reserves. Unrestricted bequests, which can often be used to build endowments or reserves, usually come from annual donors with a long history of supporting the organization.
3. Understand the true costs of each program and activity, and know which ones produce net revenue and which ones drain resources. It can be difficult to operate at a surplus and build up reserves if too many programs lose money. It's also hard to know what to cut to improve the bottom line if you don't track income and expenses by program.
4. Understand your balance sheet. Reserves are not the same as money in the bank, since many groups have large amounts of restricted income. The balance sheet--an integral but often overlooked element of financial statements--provides a more accurate picture of reserve levels. Equity in a facility should be factored out of the equation, since it can't easily be turned into cash.

For a copy of the Washington Area Nonprofit Operating Reserves report, visit www.meyerfoundation.org/reserves.

Read the Washington Post article, Nonprofits Imperiled By Low Reserves.

Meyer Foundation Releases its 2008 Annual Report

Late last year, the world changed drastically. Many people in our community are in crisis, unclear where to turn for help. Many wind up at the doors of community organizations like Bread for the City, Manna Food Center, and Community of Hope. It is here that they first realize they are not alone...

To download the 2008 Annual Report: http://www.meyerfoundation.org/downloads/Annual08.pdf

To visit our microsite for additional photos, stories, and downloads on our three featured grantees:

http://www.meyerfoundation.org/annual08 

Links for Nonprofits

Understanding Legal Issues before Adopting Employee Furlough Plan

The DC Bar Pro Bono Program has information about employee furloughs and the legal issues you should consider, including labor laws, before you adopt this cost-saving strategy. Learn more.  

YouTube Video Volunteers Connects Nonprofits with Video Makers

YouTube Volunteers is a program that helps connect nonprofit organizations with skilled video makers to help further their causes and reach new audiences online. Learn more.

Clearinghouse of Data on the Nonprofit Sector

The National Center for Charitable Statistics has quick answers about the nonprofit sector and information about the number of nonprofits in the United States. Users can also obtain information catalogued by individual states. Learn more.