Forthcoming, Nonprofit & Voluntary Sector Quarterly
Renée A. Irvin, PhD
Associate Professor, Associate Director, School of Planning, Public Policy & Management, University of Oregon
Craig Furneaux, PhD
Senior Lecturer, Australian Centre for Philanthropy and Nonprofit Studies, Queensland University of Technology
This research project was made possible by a visiting fellowship from the Ian Potter Foundation.
Organisational survival is a primary current focus, as the unforeseen economic effects of the pandemic ravage the civil sector. Over time, however, we turn to questions of resilience: How can organisations prepare for rare, but devastating, financial shocks? Three months of funds to cover operating expenses is often described as a suitable savings target. However, organisations differ greatly in their revenue volatility, which suggests that “three months” may severely underestimate the reserves that certain organisations should hold. We measure revenue volatility and calculate reserve fund targets for 25 nonprofit subsectors, showing sharp differences in optimal savings levels ranging up to one year of total expenses. We also explore organisational characteristics associated with revenue volatility. We argue for a resiliency strategy that goes beyond optimising the contents of the revenue portfolio. Funders and nonprofit practitioners should consider the broader context of financial resilience that includes correctly-sized reserves as a stabilising force.
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