Most of us were taught that we need to save some money for the future, so we have something in reserves. When I found myself running a foot race, I remembered that I needed to save something for the end. We need reserves in so many walks of life.
During the 2008 great recession, the organizations that found it easiest to succeed, were the ones that had unrestricted cash, or money available when less money was coming in the door. I’m often asked what sum that should be for a nonprofit. How many months of budget should be tucked away in what is often called a rainy day fund? There are no right answers. But for starters, I suggest 30% of your annual budget. The first 10% is there for cash flow needs. The second 10% is an emergency fund. And the third 10% is available for opportunities. Whatever the percentage, those seem to be the reasons for building some reserves.
When I was a professional foundation grant maker I found that the majority of nonprofits, especially smaller ones, didn’t have a lot set aside. But those that did, it seemed to me, were the ones that were most successful. Perhaps there is a correlation. And perhaps building reserves is another move we need to make for future success.
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