The term working capital  is traditionally used as a liquidity metric in the form of a dollar amount. In addition, many individual financial plans include having a savings account, often referred to as “rainy day funds”, to be used when the “storm” comes.

Charity Navigator wanted to evaluate the ability of a nonprofit to have funds on hand that would allow them to sufficiently operate during difficult financial times. In economic downturns, nonprofits may face revenue declines due to donations lagging behind expectations. A nonprofit with insufficient funds may, in those difficult times, need to make tough choices which include eliminating program offerings or staff members. It would be a shame if charities that provide such important services had to either close completely or cut their charitable programs if they were not prepared in advance.

Read the full article about working capital for non-profits by Matthew Viola at Charity Navigator.