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Spenders or Savers? An Examination of the Reserves of Australian NGOs
Author(s) -
Booth Michael,
Irvine Helen,
Ryan Christine,
McGregorLowndes Myles
Publication year - 2017
Publication title -
australian accounting review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.551
H-Index - 36
eISSN - 1835-2561
pISSN - 1035-6908
DOI - 10.1111/auar.12152
Subject(s) - business , sustainability , revenue , equity (law) , debt , finance , nature reserve , profit (economics) , economics , geography , political science , ecology , archaeology , law , biology , microeconomics
Not‐for‐profit (NFP) organisations experience a tension between societal perceptions about maximising mission expenditure on one hand, and their need to accumulate reserves to ensure longer term financial sustainability on the other. While studies have examined the level of reserves in UK and US contexts, there is little Australian research or guidance about what constitutes an appropriate level of NFP reserves. This paper examines the levels and implications of the reserves of 52 Australian NFP non‐governmental organisations (NGOs) over eight years, identifying two groups. Spenders, with less than three months of expenditure in reserve, were more financially vulnerable, had higher levels of debt, yet spent a relatively greater proportion of their revenue on mission‐related activities than savers. Savers, with more than three months’ reserves, demonstrated a greater proportion of revenue from fundraising, proportionately greater equity levels, and higher returns on assets. Providing unique insights into the financial reserves of Australian NGOs, this empirical study contributes to existing NFP literature on reserves, which to date has focused primarily on US and UK contexts. Further, we propose that by developing, monitoring and communicating their reserves’ strategies, NFP boards and managers will be able to improve their organisations’ financial sustainability and manage societal perceptions about reserves.