A National Imperative: Joining Forces to Strengthen Human Services in America (Jan 2018)

Exhibit 7: Financial “vital signs” of human services CBOs

Nearly 1 in 8 human services CBOs are

More than 40% of human services CBOs lack liquidity to meet their short-term financial obligations

Nearly half of all human services CBOs reported a negative operating margin over three years

30% of human services CBOs have cash reserves that cover less than 1 month of expenses

technically insolvent , with liabilities exceeding assets

Small CBOs with <$1million in revenue report higher rates of insolvency (14% insolvent) and lower operatingmargins (>1/2 report negative margins over three years)

Large CBOs with <$10 million in revenue maintain lower cash reserves relative to operative expenses (>40% report reserves covering less than 1 month of expenses)

CBOs facing more financial stress include those delivering services pertaining to • Housing and shelter • Mental health • General human services

CBOs facing less financial stress include those delivering services pertaining to • Public safety

• Food and nutrition • Youth development

Nearly 1 in 8 human services CBOs are technically insolvent , with total liabilities exceeding total assets. In addition, more than 40% of CBOs lack the liquidity to meet their immediate obligations, with short-term liabilities exceeding short-term assets. Many of these organizations limp along frompayroll to payroll with limited resources on-hand, often delaying payment of other short-term obligations and dipping into restricted funds to cover their immediate costs. These organizations have limited capital for investment and are generally unable to consider a thoughtful wind-down given the shortage of resources to fund associated one-time costs. Nearly half of all human services CBOs reported a negative three-year operating margin , with the bottom quarter reporting a three-year margin of -5% or less. These CBOs lost money, impacting their ability to remain solvent and build financial reserves. Conversely, about one-third of CBOs reported an average three-year margin greater than 5%, providing for the ability to cover liabilities, make investments, and add to reserves. 30% of human services CBOs have virtually no margin for error with cash reserves that cover less than one month of operating expenses – the absolute minimum required to demonstrate financial health, according to a leading municipal finance banker. Yet this actually overstates the available financial cushion for weaker organizations, since much of the cash is restricted to specific purposes. Accounting for investments – which are also less liquid than unrestricted cash – brings the percentage of CBOs with less than one month of expenses on hand down to 25%. At best, less than one-third of organizations maintain a strong financial cushion of reserves covering more than six months of operating expenses.

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