Financial Advice for Nonprofits

As good for organizations as it is for families and businesses, keep a reserve, as this article from the Chronicle of Philanthropy advises.

An excerpt.

“My two most recent posts flagged operating reserves as an important issue that is often neglected by nonprofit boards and gave an explanation of what they are and why they matter.

“Since 2009, when the Meyer Foundation supported an Urban Institute study of the operating reserves of nonprofits in Washington, I’ve spoken about the topic of operating reserves at numerous conferences and other gatherings. I usually try to make most of the same points and arguments covered in the two earlier blog posts.

“Whenever I speak about this topic, the reactions from board members and executive directors in the audience are almost always the same. They look bewildered, as if I’d just suggested that they try to obtain a pound of enriched uranium or an albino giraffe. And then, hesitantly, someone will ask, “How do we get these ‘operating reserves’ you keep preaching about?”

“My answer almost always seems to disappoint, perhaps because of its simplicity. The most reliable way to build reserves is by operating at a modest surplus (bringing in more money than you spend) consistently over time.

“Consider this illustration: If an organization with an annual budget of $1-million runs a $50,000 surplus (5 percent of its budget) every year for five years, its accumulated surplus would be $250,000—or three months of operating expenses. If $50,000 seems too ambitious, even half as much would get the organization to $250,000in 10 years.”