MemberAugust 5, 2022 at 7:03 pm
I agree with the “it depends” school of thought on reserves planning. Three months is, to me, an irreducible minimum of operating reserves. My local United Way chapter mandates a *maximum* of three months in reserves, and many agencies find this to be a burden because other funding sources are: 1) retrospective in nature (i.e., foundations or government reimbursing for services rendered); and 2) irregular and/or occasional (e.g., semiannual) in making payments to nonprofits.
My opinion is that 6-12 months of operating reserves is the “neighborhood” most nonprofits should be living in, depending on other circumstances – like major funder restrictions.
Some nonprofits go so far as to establish related entities (other nonprofits or even for-profits) to hold assets so they are not counted towards what a funder might consider reasonable matching funds for a project or program. There are even examples of nonprofits using related entities to appear to reduce organizational overhead and report higher shares of budget allocated to program expense. NOTE: I am not necessarily advocating this practice; I’m simply noting that it exists.