Most nonprofits in the Washington, D.C., area do not have enough cash reserves to weather a prolonged economic downturn, a new study says.
As of 2006, nonprofit on average had enough operating reserves to cover 2.1 months of expenses, less than the three months recommended by most experts, says a study conducted by the Urban Institute and funded by the Eugene and Agnes E. Meyer Foundation.
“Adequate operating reserves are essential for any nonprofit organization even in good economic times, but are crucial in the current economic environment,” Rick Moyers, the foundation’s director of programs, says in a statement.
The report defines operating reserves as cash and other liquid assets that are not restricted in their use and that can be accessed when expenses outstrip income.
Over half of the more than 2,500 nonprofits analyzed had fewer than three months of reserves as of 2006, and more than a quarter of those had no reserves at all.
Nonprofits with budgets of $5 million or more were least likely to have sufficient operating reserves in 2006, while almost two-thirds of arts, culture and humanities had too few reserves.
One in six D.C.-area nonprofits that filed returns with the IRS in 2000 did not file a return in 2006, indicating they either had closed their doors or shrunk below the $25,000 budget level that requires reporting.