If your board of directors designates funds for a reserve account, they most likely only vaguely imagine what events might occur that would necessitate digging into them. Maybe an earthquake, weather, or fire that forces cancellation of their big annual event. What if it’s a pandemic and civil unrest at the same time?
Let’s go back to that very first word – if … if your board designates funds for a reserve account. Nonprofits are notoriously strapped for cash. The tendency, and often the mission, is to apply all money to the charitable cause or membership benefits for which the nonprofit was formed.
Less than 24% of nonprofit organizations have six months of operating expenses reserved. An alarming number have less than a month of cash set aside. One study shows 20% actually have an operating deficit. So, how are they to save? Nonprofits are run by people, good well-meaning people. So, let’s look at their experience with money, their personal financial readiness for disruption.
In 2019, with nearly full employment, 69% of Americans had less than $1000 saved up. 45% had no savings at all. Only 4% have $20,000 and above up saved. With an individual median income of $32,000, families are certainly at risk without at least six months of a nest egg. Easy to suggest, hard to do.
It’s more than fair to say Americans are in fragile financial positions. The nonprofits they join and run are in the same pickle. Boards have to admit there could be disruption. They must anticipate that, when it happens, there will be more expenses, not fewer.
Is your nonprofit board of directors being wise? Nonprofits would not be in peril if they had a year of operating expense in a CD. And what if they had two years put away in case a disruption lingered? Strong management can help.
