If your organization were faced with unanticipated and significant expenditures or loss of revenues, do you have enough available and unrestricted reserves to keep going? It might not seem like a priority to have a “rainy day fund” if an organization struggles with day-to-day expenses; nevertheless, such a fund should be part of your program to manage risks that include economic downturns, natural disasters, acts of terrorism, or other crises.
Here are three essential considerations:
- Repair and replacement of fixed assets – Equipment breaks and needs to be replaced, or needs upgrading—from computer networks to furniture, roofs and heating systems. Building funds, or repair and replacement reserves, allow you to accumulate cash for non-routine maintenance or replacement of fixed assets.
- Unexpected external problems – Scenarios include the sudden loss of a previously reliable funding source, unexpected delays in the timing of grants or revenue, an unusual decrease in special-event or other earned revenue, or interruptions in operations due to extreme events such as natural disasters or terrorist attacks.
- Invest for the future – How will you respond to long-term changes in organizational strategy, or in your community, or your constituencies? Opportunity reserves allow a nonprofit to invest in program redesign or to pilot an expansion, seed-fund an innovation, test out new marketing or development ideas, or bring on staff capacity that will pay off in the future.
How much an organization needs in a “rainy day fund” depends on its obligations, resources, and risks. Some organizations are more likely to take on a big new opportunity than others… Kate Barr, president and CEO of Propel Nonprofits, says, “The first step in developing useful nonprofit reserves is to ask ‘why,’ ‘when’ and ‘what if’ questions. What rainy day fund ‘buckets’ does your organization need, why do you need them, and how would reserves maintain, protect, stabilize, and prepare the organizations to achieve mission in the community? The answers will help determine the appropriate amount of reserves.”
Volunteers Insurance Service Association, Inc. (VIS) was established in 1972 for the purpose of providing insurance and risk management services for volunteer-based organizations. In addition to still providing these insurance services today on a nationwide scale, we have expanded to provide noninsurance resources for members to manage their risks and improve their operations. By transferring the volunteer risk exposure to our program, we can help you protect your organization. Contact us today at (800) 222-8920 for more information on our programs and services. Join now!