A model of cash flow components and resource dependency as determinants of short-run financial vulnerability in nonprofit organizations

Among the biggest challenges facing nonprofit service organizations are cash flow and resource dependencies as determiners of short-run financial vulnerability (FV). Nonprofit administrators struggle with how to cope with reduced government funding. Therefore management of resources is crucial.; The financial management model developed for nonprofits is rooted in three theories: (1) Systems theory which posits that organizations are interdependent, exchanging goods or services to survive; (2) Resource dependency theory which posits that management sets the organizational direction and revenue strategies; and (3) Portfolio theory which posits that financial management should consider all sources of revenue as a group and each source individually.; The model developed is empirically tested for a sample of multipurpose nonprofit human service organizations using multiple regression analysis and 1998--2001 IRS Form 990 tax data. Short-run financial vulnerability (FV) is measured by the change in program expense over three years. The model hypothesizes FV to be a function of internal and external cash flow, resource mix, organizational size and location. The research examines financial vulnerability for organizations with and without government grants.; For the sample and both subgroups, the model explains, as hypothesized, that financial vulnerability (FV) increases with decreases in cash flow from operations and with increases from the sale of securities. The RATIO of internal to external cash flow is also related to FV, but in different ways for each group. FV increases with RATIO for the sample and the group without government grants, but decreases as RATIO increases for the group with government grants.; This research contributes to literature because it is different from other models in the nonprofit literature (Chang & Tuckman, 1994; Greenlee & Trussel, 2000; Trussel, 2002; Tuckman & Chang, 1991) because it relies on cash flow measures and the mix of internal and external resources.; The model developed in this research holds promise as a tool for nonprofit organizations. The model helps identify the impact of resource mix on financial vulnerability. It helps practitioners understand the risks of different revenue strategies.