Financial measures are routinely used as a proxy for nonprofit organizations’ capacity to serve, but the link between financial indicators and program outcomes has been largely unexamined. This study examines empirically whether, and to what extent, financial measures predict program success. The analysis draws on a unique data set from the Cultural Data Project (2004-2012) that covers nearly 5,000 nonprofit arts and cultural organizations. The empirical results confirm that financial attributes are indeed linked to program outcomes. Yet, some of the factors that contribute to financial stability and efficiency have no or negative relationships with program outcomes; this finding suggests that some efforts to maintain financial strength may be made at the expense of program performance. This study also draws attention to the inconsistent way revenue diversification is being measured and calls attention to the value in focusing on the primary funding mechanism of a nonprofit organization.

Scholars and practitioners have argued that effective financial management, particularly the development of operating reserves, can help nonprofits survive economic shocks. The COVID-19 pandemic, which has had a significant impact on the nonprofit sector, provides an opportunity to test whether nonprofits have followed that recommendation, and if so, whether nonprofits with operating reserves were better prepared for the pandemic. Using data from an original survey of more than 600 nonprofit human service and arts organizations, administered when most states had stay-at-home restrictions, we show that most nonprofits experienced an immediate impact on their programs and financing. Yet, those nonprofits with more reserves were less likely to reduce operating hours, lose staff, or experience difficulty acquiring supplies or vendor services. Our study provides rare empirical data on the benefits of operating reserves for nonprofits. Our results also confirm that arts and culture nonprofits were more severely affected than human service nonprofits.

Although the topic of nonprofit collaboration has attracted much scholarly attention, few studies have focused on collaborations of small nonprofits in particular. This study examines the human resource capacity dilemma that many small human service nonprofit organizations face and its relationship to a nonprofit's collaboration efforts. Our analysis is based on 2016 online survey data from 229 small human service nonprofit organizations with annual gross receipts of less than $500,000. Descriptive results show that most of the small human service nonprofits have very few paid staff. Even so, over 90% of these small human service nonprofit organizations are involved in formal collaborations and/or informal networks. Analytical results suggest that organizations are more likely to participate in formal collaborations when they have at least one or more full‐time employees; these collaborations help organizations obtain funding and meet client needs. We discuss the implications of our findings and offer insights for small nonprofits that aim to expand service capacity through collaborations.

Although operating reserves can aid nonprofit organizations in alleviating periods of fiscal stress, they are not widely used. This study examines organizational factors that impact the level of operating reserves in nonprofit organizations. It also explores the relationship of operating reserves with organizational demographics and financial health variables using a six-year (1998-2003) unbalanced panel regression model containing 460,437 observations. Findings demonstrate a positive relationship between operating reserves and administration ratio, profit margin, operating margin, and organization age. Conversely, the size of operating reserves is negatively related to leverage ratio, donations, and organization size. Revenue diversification, however, shows a mixed relationship with operating reserves among different types of nonprofit indicating complexity in risk-reducing strategy. This study contributes to understanding factors relevant to the presence, or absence, of nonprofit operating reserves.

This exploratory study has three objectives: (1) to understand the various ways academics, consultants, and practitioners conceptualize operating reserves; (2) to explore differences among academic findings, consultant recommendations, and nonprofit leader perceptions of operating reserves; and (3) to identify how practitioners operationalize operating reserves within their organizations. Using intensive interviews with nonprofit executives, we find that the operating reserve ratio ( ORR ) commonly used in the nonprofit literature does not accurately indicate whether an organization holds an operating reserve according to nonprofit leaders. In addition, results indicate that experienced nonprofit leaders perceive a variety of other fund types including endowment and investment savings as well as ability to borrow, other assets, sister foundations, and donor networks as legitimate substitutes for a reserve.OPERATING RESERVES CAN AID NONPROFIT ORGANIZATIONS in stabilizing periods of fi scal stress by providing a cushion against unexpected events, an opportunity to seize a strategic opportunity, or even the ability to smooth cash fl ow problems in contracting and grant relationships. 1 Within the recent fi scal climate, the need for such funds seems to be on the rise among nonprofits. In 2012, more human service organizations drew from operating reserves, froze or reduced salaries, or closed offi ces or programs than in prior years (Pettijohn et al. 2013 ). Although nonprofi t organizations should ideally hold an appropriate amount of highly liquid unrestricted assets in reserve to address fi scal shock or unanticipated opportunity, many organizations face challenges in creating and maintaining such reserves for myriad reasons . Understanding the complex challenges presented by operating reserves from both research and fi eld vantages is necessary to enable academics and consultants to make sound recommendations and for nonprofi t leaders to make prudent decisions regarding reserves.Th e authors express their appreciation to the nonprofi t leaders who participated in this study and the journal ' s anonymous reviewers whose critique improved the work. We dedicate this article to the memory of Woods Bowman whose foundational scholarship on nonprofi t fi nance has inspired and challenged us.