Assessing Your Reserves Policy

(from CliftonLarsonAllen) During periods of hardship, having sufficient operating reserves can spell the difference between survival and insolvency. The need for sufficient reserves has become increasingly apparent during the pandemic, and nonprofits may want to reexamine their reserve policies and consider increasing reserve levels above what they previously thought reasonable or feasible. At the same time, new challenges have emerged in the form of rampant inflation and a potentially slowing economy that could reverse the tide of growing service revenue and donations. Questions to consider include: 

• What should we do with our nonprofit reserves?
• How much should be designated as “rainy-day” funds versus long-term reserves?
• Should we build an endowment or establish a board designated reserve to operate like one?
• What is the appropriate level of risk to assume?
• Are there investment options that align with our organizational values?

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