Much like a personal financial plan, an association’s financial plan should include some “savings,” also known as “reserves.” To build an effective reserve policy that is reviewed often and well-documented, an association, or a hired consultant like Sage & Rosemary, has to do the following things.
Determine the definition and purpose of your reserves – Whether a reserve is a set amount or just the “leftover” cash from your other expenses, you should specifically state what the intended purpose of these reserves will be. This can be to safeguard against economic downturn, fund special projects and new ventures, or just for ease of daily operation.
Determine the reserve fund target – There is a wide range of reserve fund amounts across associations in America according to the 2018 State of the Nonprofit Sector Survey by NFF: anywhere from less than 30 days (9%) worth of funds to cover operational costs, to over 6 months (25%) worth.
Determine allocation criteria – Once you have determined how much funds will be in your reserve, you must create a procedure for allocation, so you will know how and when you can spend the reserve fund’s cash.
For associations that may need help with ensuring adequate reserves, contact Sage & Rosemary Consulting for help with planning and creating financial policies that support your goal, as well as budgeting, risk management procedures and tools, and fundraising for unrestricted income.