Cleopatra Charles, Ph.D.
Associate Professor
Rutgers University-Newark
NCNE Board Member
A Rainy Day Is Here: Why Operating Reserves Matter More Than Ever for Nonprofits
In the uncertainty of today’s nonprofit landscape, I’ve found myself returning to my earlier research from a decade ago to make sense of the challenges nonprofit organizations are now facing. As available funding becomes more volatile, donor retention declines, and operational costs continue to rise, the insights from my early work on nonprofit operating reserves feel more relevant than ever. These studies once framed as guidance for “rainy day” preparedness now offer timely lessons nonprofits can use for navigating the financial storms they are currently experiencing not just in the United States but globally.
The question facing nonprofit leaders today is simple: Do we have enough saved for a rainy day? These three foundational studies on nonprofit operating reserves reveal not only how reserves are built and managed, but why they are essential for survival. Today, as organizations grapple with inflation, declining donor retention, and government funding disruptions, these insights have never been more relevant.
Why Operating Reserves Matter Now
While historically nonprofits have always walked a financial tightrope, in recent years that pressure has intensified. Competition for limited donations is rising, government payments are delayed, frozen, or canceled and inflation is rapidly driving up operational costs. For many organizations, reserves have shifted from a strategic buffer to a lifeline. Understanding what drives reserve size, and how leaders think about them, can help nonprofits navigate today’s financial turbulence.
Key Insights from the Research (and Why They Matter Today)
1. Financial Structure Shapes Reserve Levels
Academic Insight: Grizzle, Sloan, & Kim (2015) find that nonprofits with more stable revenue streams such as fees or government contracts tend to maintain larger reserves.
Nonprofit Application: In 2025, when government dollars are delayed and, in some cases, outright canceled, many organizations are running operating deficits. Nonprofits with diversified revenue are weathering disruptions better. This is the time to reassess funding strategies, build fee-based programs, or cultivate multi-year gifts.
2. Leaders View Reserves as Both Security and Strategy
Academic Insight: Sloan, Charles, & Kim (2016) show that nonprofit executives see reserves not just as emergency funds, but as tools for innovation, investment, and stability.
Nonprofit Application: With donors increasingly seeking transparency and measurable impact, framing reserves as a strategy and not simply hoarding can strengthen donor trust and support.
3. Creating and Maintaining Reserves Is Intentional Work
Academic Insight: In What Happens on a Rainy Day? Sloan, Grizzle, & Kim (2015) highlight that building reserves requires deliberate policies, board engagement, and cultural commitment.
Nonprofit Application: In today’s climate of rising costs and shrinking contributions, disciplined reserve-building, however slow, may determine whether programs continue or collapse during shocks.
A Call to Action
The rainy day nonprofits plan for is no longer hypothetical, it is here. These studies remind us that operating reserves are not optional; they are a strategic necessity. Nonprofit leaders should reevaluate their reserve policies, diversify their revenue, and communicate openly with donors about the role of reserves in mission sustainability. A strong reserve today means stronger impact tomorrow no matter what storms may come.
This article is one of many resources dedicated to strengthening the nonprofit sector. Please be sure to check out NCNE’s website and LinkedIn page to connect with other nonprofit leaders and support on making wise decisions in nonprofit leadership.
References
Grizzle, C., Sloan, M. F., & Kim, M. (2015). Financial factors that influence the size of nonprofit operating reserves. Journal of Public Budgeting, Accounting & Financial Management, 27(1), 67-97.
Sloan, M. F., Charles, C., & Kim, M. (2016). Nonprofit leader perceptions of operating reserves and their substitutes. Nonprofit Management & Leadership, 26(4), 417-433.
Sloan, M. F., Grizzle, C., & Kim, M. (2015). What happens on a rainy day? How nonprofit human service leaders create, maintain, and utilize operating reserves. Journal of Nonprofit Education & Leadership, 5(3), 190-203.
