More sophisticated donors seeking more financial data
Date | 01 August 2017 |
Published date | 01 August 2017 |
DOI | http://doi.org/10.1002/nba.30345 |
AUGUST 2017
5
NONPROFIT BUSINESS ADVISOR
© 2017 Wiley Periodicals, Inc., A Wiley Company • All rights reserved
DOI: 10.1002/nba
Financial Management
Many nonprots vulnerable to uncertainty
due to low operating reserves
New research from accounting rm BDO shows that
the nation’s nonprots are still struggling with liquid-
ity issues that could hamper their ability to weather a
downturn in donations and grants. The rm’s recent
study Nonprot Standards found that nonprots have
liquid unrestricted net assets amounting to an average
of 8.7 months of operating reserves. However, some 40
percent maintain between one month and less than six
months of reserves, and almost a quarter of health and
human services organizations surveyed for the report
don’t maintain any operating reserves at all.
According to Laurie De Armond, national co-
leader of BDO’s Nonprot & Education Practice, the
data show a charitable sector that is quite vulnerable
if a major economic downturn took place.
“Without adequate operating reserves, nonprots
can’t weather uncertainty in their funding streams or
other things that could threaten their programming,”
De Armond said.
Certainly, the last major recession caught a lot of
nonprots off guard, and many saw donations dwindle.
But now that charitable contributions are back near
record levels and the economy seems on track, other
changes in the political landscape still threaten non-
prot cash ows, she said.
Many organizations rely heavily on government
grants, for example, and the current administration
seems intent on cutting funding that previously had
seemed stable. Add to that governments cutting back
on their own social services programs, and nonprots
could be facing increases in demand for services, along
with cuts in government funding—even while the
broader economy is humming along and individual
donations are doing well.
Having sufcient reserves on hand to handle these
scenarios—doing more with fewer resources—is criti-
cal, she said.
Adequate cash reserves are also vital when it comes
to strategic planning, she said. When a charity goes
through the strategic planning process and identies
activities and changes needed to solidify and expand
the capabilities of the organization, they will need
to draw on operating reserves to put such plans into
motion.
“One of the biggest risks nonprots run in having
too little in operating reserves is not being able to invest
in themselves. They need to have a stable footing so
In its recent report on the nonprot sector, ac-
counting rm BDO found that more and more
donors are expecting charities to report increas-
ingly complex nancial data showing impact. Per
the report, some 55 percent of organizations said
that some portion of their funders have required
more information than was required in years past.
According to Laurie De Armond, BDO’s co-leader
for its National Nonprot & Education Practice,
today’s donors are growing more sophisticated in
evaluating charities’ effectiveness. They have a bet-
ter understanding of what nancial metrics mean
and how they relate to impact. They know that the
basic overhead ratios used in the past don’t tell the
whole story of what a charity does and the impact
it is having, she said.
And while nonprots are straining under the
increased reporting burden, devoting resources to
this creates a positive feedback loop that helps pay
for itself in the end.
“Many nonprots are struggling with this, and
often don’t have the human resources and stafng
needed to gather the information and report it out.
But it is very important data to gather,” she said. “It
is extremely powerful to be able to effectively dem-
onstrate the impact your organization is having.”
That helps attract more supporters and drive
more donations to your organization, she said. ■
More sophisticated donors seeking more nancial data
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