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Managing the finances of a nonprofit goes beyond raising funds and tracking expenditures. It involves financial stewardship—responsibly saving, storing, and investing your cash reserves to enhance your organization's long-term financial stability.
It's essential to manage your organization's reserve funds effectively and stay informed about the latest financial best practices and trends in the nonprofit sector. We've compiled a list of current nonprofit cash management statistics and trends to guide you. Whether you're new to investing your nonprofit’s funds or looking for effective cash management strategies, these insights will help you make data-driven financial decisions.
Nonprofit Cash Management and Investment Statistics
Let's start by examining two notable financial management statistics.
1. 38% of Nonprofits Manage Investments
A study by The Nonprofit Times found that 38% of nonprofits reported expenses related to managing investments, such as paying for investment advising services. This indicates that over a third of nonprofits have investment accounts and are actively managing their funds.
However, this also means that more than 60% of nonprofits are not investing, potentially limiting their growth and community impact. But this doesn’t have to be the case. It's now easier than ever to responsibly invest your nonprofit’s reserve funds and manage them effectively.
If your organization is part of the 60% not investing, you have a significant opportunity to build a robust investment portfolio through low-risk, highly liquid strategies like treasury bills and money market accounts. Start by consulting a nonprofit investment advisor who can help you choose the best cash management strategies and draft a nonprofit investment policy statement (IPS) to guide your efforts.
2. Accepting Stock Donations Can Increase Fundraising Contributions by 66%
A Texas Tech University study analyzed the fundraising revenue growth of over 200,000 nonprofits to determine whether accepting non-cash donations, particularly stock gifts, had any impact. The results were clear: they do.
The study found the average fundraising contributions growth over five years to be:
- 11% growth for nonprofits accepting only cash donations
- 50% growth for nonprofits accepting any kind of non-cash gifts
- 66% growth for nonprofits accepting stock donations
What does this mean for your organization? Expanding your donation options to include non-cash asset gifts, especially stock donations, can significantly enhance your overall fundraising capacity.
3. Keeping 6-12 Months’ Worth of Operating Costs in Reserve
Due to the rise in economic uncertainty in recent years, including the COVID-19 pandemic, the importance of having reserve funds has become clear to every nonprofit. Establishing and maintaining a dedicated reserve fund, often called a rainy day fund, is now essential for every organization.
Historically, some nonprofit professionals were hesitant to set aside too much funding that could be used immediately for their mission, resulting in insufficient reserve funds. However, more nonprofits are now recognizing the importance of reserve funds and adhering to the best practice of keeping at least 6-12 months’ worth of operating costs in reserve. This ensures they have ample resources in emergencies and a solid financial footing.
4. Seeking More FDIC Coverage Through Brokerage Accounts
A significant concern for many nonprofits is the potential for bank failures. What happens to your reserve funds if your bank fails? How can you protect donor gifts?
The solution is adequate FDIC coverage—insurance provided by the Federal Deposit Insurance Corporation. However, standard savings accounts have a limit on FDIC coverage. Infinite Giving’s brokerage account guide highlights the key differences in coverage between different types of nonprofit accounts:
- Standard nonprofit bank accounts offer up to $250,000 in FDIC coverage, often leading organizations to split their reserves across multiple accounts, complicating bookkeeping and restricting fund access.
- Brokerage accounts with sweep programs offer up to $5 million in FDIC coverage. Using a single high-capacity account ensures coverage for all reserve funds and streamlines your accounting.
Due to these coverage differences, more nonprofits are shifting to brokerage accounts with sweep programs, providing significantly more FDIC coverage. Additionally, having a brokerage account allows your organization to accept stock donations, further enhancing fundraising potential.
5. Making It Easy to Accept Non-Cash Donations
Many nonprofits recognize the fundraising potential of non-cash donations like stocks and cryptocurrency and are working to simplify the donation process for these gifts.
Historically, stock donations required extensive paperwork, burdening both donors and staff and limiting such gifts to the largest nonprofits and most dedicated donors. Today, modern asset donation technology enables nonprofits of all sizes to accept stock donations through fully online processes, making it easier for donors and encouraging more frequent non-cash gifts.
Beyond stock gifts, the best tools allow nonprofits to accept various alternative donations, including donor-advised fund (DAF) grants, cryptocurrency, and endowments. These donation types are popular with high-capacity donors, and Double the Donation reports that nonprofits are maintaining a strong focus on major donors, as impactful donors are giving more even as total donations decline.
Strategic Cash Management for Long-Term Success
Effective cash management is crucial to securing your organization’s long-term financial health and amplifying your community impact. By understanding the current state of nonprofit finance, you can make more informed decisions on managing your nonprofit’s funds effectively.
