Regardless of its business profile, every company should have reserved cash resources for unforeseen needs. This rule is mandatory for both for-profit and non-profit organizations. However, the question of how much contingency resources are needed – particularly for nonprofit companies – remains open to debate. Here are some authoritative opinions on how much a nonprofit should have in reserves to ensure stability in all conditions.
Why do nonprofits need reserve resources?
A reserve budget for nonprofits is critical to moving forward. And it’s not just because such reserves can be an additional financial cushion that can be used to address unforeseen problems. Such reserves can be used as an additional source of funding and solving flowing tasks – for example, office repairs or paying salaries to company employees. Creating and maintaining budget reserves is one way to allocate and use resources wisely.
Practice shows that many nonprofits ignore the requirement to maintain reserve resources. According to surveys, some companies have cash reserves that last six months, some companies have no more than three months. This indicates an ill-considered use of the resources they receive, which can ultimately lead to more serious financial problems.
How to Properly Manage Nonprofit Assets?
To avoid potential financial problems with your nonprofit organization, there are some simple tips you can follow:
- Determine your company’s required financial level. In order to properly allocate financial resources in a company – regardless of the specifics of its business – you should first determine the exact size of your company’s financial needs. That way you can determine not only the number of in-line costs but also the exact amount for backup storage.
- Get busy developing a corporate financial management policy. Such a practice guide should outline the exact amounts to be backed up, the circumstances in which the company can set aside for backup storage, the process for transferring funds and reporting documentation, and other things that relate to maintaining backup resources.
- Make guidelines for backup storage resources publicly available. Needless to say, any company’s financial policies should be open and accessible to everyone involved in the company. This applies not only to introducing the practice of discussing the corporate budget but also to discussing reserve funds and their use for the benefit of the entire organization. For a nonprofit organization, this practice will help find the best way to use not only reserve resources but also flow budget resources.
- Pay enough attention to planning. Profit and spending planning should be an integral part of the company’s overall planning process. to do this, consider the actual figures for different models in order to make the most accurate profit forecast and reserve share of the budget. Without a clear planning mechanism, determining the exact amount of reserve resources will be much more difficult.
The question of how much a nonprofit organization’s reserve funds should be cannot be decided in an imperative way. It is always necessary to take into account the specifics of each particular company and the exact size of its financial flows, which may differ in different periods of activity.