Running on Empty: The Operating Reserves of U.S. Nonprofit Organizations
Article first published online: 4 DEC 2012
© Wiley Periodicals, Inc.
Nonprofit Management and Leadership
Volume 23, Issue 3, pages 281–302, Spring 2013
How to Cite
Calabrese, T. (2013), Running on Empty: The Operating Reserves of U.S. Nonprofit Organizations. Nonprofit Management and Leadership, 23: 281–302. doi: 10.1002/nml.21064
- Issue published online: 6 MAR 2013
- Article first published online: 4 DEC 2012
- financial management;
- empirical research;
- public charity;
- nonprofit organizations
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.