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Does Your Nonprofit Have a Rainy-Day Fund?

No? You're not alone, which concerns the Nonprofit Operating Reserves Initiative Workgroup. "The fact is," the workgroup notes in its new Operating Reserve Policy Toolkit, "that numerous nonprofits have negative operating reserves and are already at risk. The current economic crisis or any crisis (e.g., fire, natural disaster, acts of terrorism, war, civil unrest, etc.) can threaten the very existence of thousands of nonprofit organizations."

You say your nonprofit does have a rainy-day fund? Is it the right size? How do you determine how much is too little, too much, or just right?

The Operating Reserve Policy Toolkit is a free resource to help nonprofits establish operating reserves, i.e., rainy-day funds, or, if they already have them, determine if they are saving enough, too little, or too much. The toolkit is an outgrowth of work by the Nonprofit Operating Reserves Initiative Workgroup, which comprises representatives from more than 50 nonprofit and for-profit organizations, including GuideStar. It contains background information on operating reserves and concrete guidance for developing an operating reserve policy; determining how much to keep in reserve; investment considerations; and legal, tax, and accounting implications.

The toolkit's authors acknowledge that promoting operating reserves may seem odd when many organizations are reeling from the recession's impact. Yet they firmly believe that nonprofits need to address this issue now:

At a time when nonprofit organizations may be focused on survival, the thought of building operating reserves may seem a distant priority. But for those organizations that survive these difficult economic times, fortifying their position before the next crisis must include re-establishing or creating operating reserves. Organizations which review their policies now and begin to devise plans for replenishing their operating reserves to an agreed upon adequate level will emerge from this current economic crisis in a stronger financial position, positioned to withstand the next challenge that arises.

Thus, the real question is "Can we afford not to have an Operating Reserve?"

Learn more

Suzanne E. Coffman, October 2010
© 2010, GuideStar USA, Inc.

Suzanne Coffman is GuideStar's editorial director and editor of the GuideStar Newsletter.

Topics: Nonprofit Leadership and Practice