Comments on: The Cash Reserves Myth http://www.nonprofitsassistancefund.org/blog/2008/04/24/the-cash-reserves-myth/ Nonprofits Assistance Fund shares thoughts and insights on nonprofit management and finance Fri, 20 Jan 2012 15:53:43 +0000 hourly 1 http://wordpress.org/?v=3.3 By: Mark Daley http://www.nonprofitsassistancefund.org/blog/2008/04/24/the-cash-reserves-myth/comment-page-1/#comment-52166 Mark Daley Wed, 26 Jan 2011 02:47:22 +0000 http://www.nonprofitsassistancefund.org/blog/2008/04/24/the-cash-reserves-myth/#comment-52166 A few interesting articles on organizational reserves. Kevin A few interesting articles on organizational reserves.

Kevin

]]> By: Ashley Schweitzer http://www.nonprofitsassistancefund.org/blog/2008/04/24/the-cash-reserves-myth/comment-page-1/#comment-43659 Ashley Schweitzer Thu, 02 Sep 2010 18:59:42 +0000 http://www.nonprofitsassistancefund.org/blog/2008/04/24/the-cash-reserves-myth/#comment-43659 Here's a more recent post about cash reserves that you may find helpful: http://www.nonprofitsassistancefund.org/blog/2010/03/23/how-i-learned-to-love-cash-reserves. It also includes a link to a resource article with sample policies for operating reserves and other kinds of reserves that you can customize for different organizations. Here’s a more recent post about cash reserves that you may find helpful: http://www.nonprofitsassistancefund.org/blog/2010/03/23/how-i-learned-to-love-cash-reserves. It also includes a link to a resource article with sample policies for operating reserves and other kinds of reserves that you can customize for different organizations.

]]> By: Kate Barr http://www.nonprofitsassistancefund.org/blog/2008/04/24/the-cash-reserves-myth/comment-page-1/#comment-43626 Kate Barr Wed, 01 Sep 2010 21:04:25 +0000 http://www.nonprofitsassistancefund.org/blog/2008/04/24/the-cash-reserves-myth/#comment-43626 Ana - I'm glad you found the post to be useful. The question about how to determine reserve needs for newly established nonprofits is interesting but I think that it will be an academic question rather than a practical one. Newly formed nonprofits need to develop revenue sources to cover the costs of delivering their intended programs and to begin building infrastucture. Reserves are usually built from surpluses over time and very few start up organizations can expect sitgnificant surpluses right away. We do counsel nonprofits to start with a baseline reserve amount equal to one month's personnel expenses (including taxes and benefits). That's the amount that we call the "Exceutive Director can sleep at night" reserve. Ana -

I’m glad you found the post to be useful. The question about how to determine reserve needs for newly established nonprofits is interesting but I think that it will be an academic question rather than a practical one. Newly formed nonprofits need to develop revenue sources to cover the costs of delivering their intended programs and to begin building infrastucture. Reserves are usually built from surpluses over time and very few start up organizations can expect sitgnificant surpluses right away. We do counsel nonprofits to start with a baseline reserve amount equal to one month’s personnel expenses (including taxes and benefits). That’s the amount that we call the “Exceutive Director can sleep at night” reserve.

]]> By: Ana Orwel http://www.nonprofitsassistancefund.org/blog/2008/04/24/the-cash-reserves-myth/comment-page-1/#comment-43485 Ana Orwel Sun, 29 Aug 2010 10:42:17 +0000 http://www.nonprofitsassistancefund.org/blog/2008/04/24/the-cash-reserves-myth/#comment-43485 Also would be grateful for your comments and thoughts how to solve cash reserve determination question for those nonprofits where there is no historic information. Thanks for great post! Also would be grateful for your comments and thoughts how to solve cash reserve determination question for those nonprofits where there is no historic information. Thanks for great post!

]]> By: Ana Orwel http://www.nonprofitsassistancefund.org/blog/2008/04/24/the-cash-reserves-myth/comment-page-1/#comment-43484 Ana Orwel Sun, 29 Aug 2010 10:40:04 +0000 http://www.nonprofitsassistancefund.org/blog/2008/04/24/the-cash-reserves-myth/#comment-43484 Recently stumbled upon this post. In my opinion this topic is always important, since usually we can here about different standards nonprofit should follow, however I agree that we should not follow them blindly. With regard to cash reserves I would also analyze past history of financing coming in and only then would decide on necessity of the reserve and its amount. However I would find it hard for a newly established nonprofits to identify the reserve amount, since there is no historic information and most probably it would be just a judgment. Or maybe there would be some possibility to analyze financing streams of similar nonprofits. Recently stumbled upon this post. In my opinion this topic is always important, since usually we can here about different standards nonprofit should follow, however I agree that we should not follow them blindly.

With regard to cash reserves I would also analyze past history of financing coming in and only then would decide on necessity of the reserve and its amount.

However I would find it hard for a newly established nonprofits to identify the reserve amount, since there is no historic information and most probably it would be just a judgment. Or maybe there would be some possibility to analyze financing streams of similar nonprofits.

]]> By: Kate Barr http://www.nonprofitsassistancefund.org/blog/2008/04/24/the-cash-reserves-myth/comment-page-1/#comment-19 Kate Barr Thu, 24 Apr 2008 23:15:09 +0000 http://www.nonprofitsassistancefund.org/blog/2008/04/24/the-cash-reserves-myth/#comment-19 It's good to know that these theories makes sense to you, Soren, and can might guide the nonprofit in crafting a useful policy. Here's another thought to add to the mix: surpluses are good for more than building cash reserves. What are some other ways that a nonprofit can use funds generated from a surplus? After building up an adequate cash cushion, are there organizational investments that will have long term impact and value? Nonprofits might get more out of timely investments in technology, marketing, staff development, research, program planning, than they will from a large cash reserve fund. In the long run they may even generate more cash reserves. It’s good to know that these theories makes sense to you, Soren, and can might guide the nonprofit in crafting a useful policy. Here’s another thought to add to the mix: surpluses are good for more than building cash reserves. What are some other ways that a nonprofit can use funds generated from a surplus? After building up an adequate cash cushion, are there organizational investments that will have long term impact and value? Nonprofits might get more out of timely investments in technology, marketing, staff development, research, program planning, than they will from a large cash reserve fund. In the long run they may even generate more cash reserves.

]]> By: Soren http://www.nonprofitsassistancefund.org/blog/2008/04/24/the-cash-reserves-myth/comment-page-1/#comment-18 Soren Thu, 24 Apr 2008 21:15:07 +0000 http://www.nonprofitsassistancefund.org/blog/2008/04/24/the-cash-reserves-myth/#comment-18 Kate - I found this week's topic quite timely. I'm board treasurer for a small nonprofit, and our finance committee was recently discussing moving our cash reserve policy from 3 months to 6 months. (We realize, of course, that it would take several years of surpluses to do so.) However, as you point out, first we need to take a closer look at our sources of funding. It would seem there are several levels of examination necessary. First, how diverse is our funding? Do we have many different sources/categories of funding? Second, how diverse are we within each funding source? If we generate $300,000 in grants, but $200,000 is from one funder, we have significant risk. I am reminded of Jon Pratt's (Minnesota Council of Nonprofits) work on the funding reliability–autonomy matrix http://www.nonprofitquarterly.org/content/view/110/28/ As he points out, different types of funding have different levels of reliability. Before automatically raising our reserves to six months, we should first analyze the diversity and reliability of our funding. Perhaps our analysis will even convince us that we don't really need three months of reserves! - Soren Jensen, M.A. Nonprofit Management Kate – I found this week’s topic quite timely. I’m board treasurer for a small nonprofit, and our finance committee was recently discussing moving our cash reserve policy from 3 months to 6 months. (We realize, of course, that it would take several years of surpluses to do so.) However, as you point out, first we need to take a closer look at our sources of funding.

It would seem there are several levels of examination necessary. First, how diverse is our funding? Do we have many different sources/categories of funding? Second, how diverse are we within each funding source? If we generate $300,000 in grants, but $200,000 is from one funder, we have significant risk.

I am reminded of Jon Pratt’s (Minnesota Council of Nonprofits) work on the funding reliability–autonomy matrix http://www.nonprofitquarterly.org/content/view/110/28/ As he points out, different types of funding have different levels of reliability.

Before automatically raising our reserves to six months, we should first analyze the diversity and reliability of our funding.

Perhaps our analysis will even convince us that we don’t really need three months of reserves!

- Soren Jensen, M.A. Nonprofit Management

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