How to Draw Down a Nonprofit Cash Reserve
When the economy goes bad, even nonprofits may find their budgets strained. Hard times may force donors to cut back their contributions, but the demands on the organization's services may still grow. Groups such as the National Center for Charitable Statistics recommend that nonprofits maintain a cash reserve to pay operating costs when expenses rise or income shrinks. There's no legal restriction on how big a reserve may be --- certain nonprofit professionals say the right-size reserve is different for each organization. What matters is that the reserve is available for the organization to draw on if it becomes necessary.
Other People Are Reading
Instructions
-
-
1
Ask the board how the organization defines the cash reserve. If the board has specifically designated some of the organization's assets as a reserve, it takes a board decision to access the money. If the board has combined the cash reserve with day-to-day operating funds, then anyone who has authority to access the operating funds may draw down the reserve.
-
2
Learn what assets are in the cash reserve. Reserves should be liquid or easy-to-liquidate assets; if they're combined with the operating funds, it's possible that some of the liquid assets have been drained for routine expenses. That may leave the reserve holding assets that you can't convert to cash easily.
-
-
3
Read your board's policies on when it's acceptable to tap the reserve. If current circumstances qualify, request that the board authorize a drawdown if you don't have the authority to access the reserve yourself.
-
4
Replenish the funds as soon as possible. If it's a temporary shortfall because of a late donation, you may be able to restore the fund within a month or so. If the problem is more complex, budgeting money to build the fund back up may take much longer.
-
1
Tips & Warnings
If your nonprofit doesn't have a cash reserve, developing one should be a priority. Even the most regular, faithful donors may stop giving at some point.
It's legal for a nonprofit to save surplus funds instead of spending them.
Your organization should draw up a policy for replenishing the reserve. The policy should decide the point at which rebuilding the reserve becomes a priority, as well as where the money will come from.
