Posted By Jonathan D. Moll, CPA
The experts can’t seem to agree on whether or not the current economic crisis is ending, just beginning, or if we’re stuck in the middle of it. However, everybody agrees that there is a need for nonprofit organizations to establish a “rainy day fund” that will help them continue to serve their clients and carry out their missions in the event of an unforeseen financial crisis. The National Center for Charitable Statistics has published an informative technical reference with its “Operating Reserve Policy Toolkit for Nonprofit Organizations”. I consider this a must-read for nonprofit board members and financial professionals.
Issues and questions addressed in the document include:
- Operating Reserves: What are they and why have them?
- Developing a written operating reserve policy
- What’s the appropriate balance for an operating reserve?
- What sources can fund the operating reserve balance?
- What are the appropriate uses of the operating reserve?
- Investment considerations for operating reserves
Establishing an operating reserve policy that is well matched to the needs of your nonprofit organization helps to assure financial stability going forward. This financial stability is the greatest measure of commitment to the clients your organization serves.