[lauren]

1. What are the minimum reserve requirements you reccomend based not only on the annual budget, but as a percentage of receivables outstanding that have aged more than 1 year?

2. Given the challenging economic environment, what is your timing guideline recommendation on both writing off, or reducing unpaid pledge amounts probability of fulfillment after 1 year?

[Ruth.McCambridge]

Welcome! This is Ruth McCambrridge, a proud member of the team here at the new Nonprofit Financial Commons where we believe wholeheartedly in the deep wisdom and tested skill of nonprofit financial leaders. And we know that all of our knowledge is enriched by being able to consult peers in similar straits – that is why we built this platform. We believe in your wisdom and skill, by the way, because we watch what many of you do day to day. But we have also been in those leadership positions ourselves and we know how frustrating it is to have a bunch of prescriptions thrown at you as best practice when you know that the formula makes no sense in your context and for your organization.

That is why, at every step, we , at the financial commons will ask you what exactly you need and what you know. In this case, we are asking for any questions you may have foor our panelists at our webinar on reserves on Thursday. If you have none yet, don’t worry! We will ask again. and now you can go on to the next area where we ask you about your experience with your use of reserves during the pandemic.

[rjb395]

# 1 – How do you feel about using reserves to invest in expansion and enhanced program quality as evidenced by a proposed budget loss.

# 2 – We are an afterschool program that teaches self confidence, positive thinking, healthy living, and physical activity – running. As all afterschool activities were cancelled we had to cancel our programs for both spring and fall. We refunded all fees that were paid for the cancelled program. Our reserves, coupled with strong Board and donor support along with support from the PPP and ERTC programs, were sufficient to carry us through this period. We resumed program activity in 2023 at about have the participant level as before the pandemic.

[skusterchildmusephx-org]

Thanks so much for the opporunity to participate in this forum. I work for an Arts organization with a $5 million budget. We were closed for 14 months during the pandemic, opening “outside only” for limited days and times for 7 of those 14 months. We did not use our reserves during the pandemic. Right after we closed our doors middle of March 2020, we drew on our LOC, not knowing what we would need, and concerned that as our financial position worsen we might no longer be able to draw on this line. Great decision! We also asked donors if we could unrestrict funds – across the board they were generous and allowed us to do this.
Federal funding was also enormously helpful during the pandemic.

Questions:
1) We have designated working capital of 90 days (based on budgeted daily cash expenses) and additionally operating reserves. Our building belongs to the City, so we don’t have large capital expenditures to maintain it. How should organizations hold reserves? In money market accounts, CD’s, short-term bonds? This can be a large amount of money that declines in value.

2) Budgeting with our eye on maintaining a surplus to continue to build reserves is difficult. What is normal earned revenue? What can we expect from our donors? How do we pay employees enought to hire and retain them and keep up with inflation? How can we prepare for a possible recession looming and Americans predicted to have less money in 2023 for discrenary spending?

Looking forward to the webinar.

[elisabeth]

I’m the ED of statewide land trust with an annual operating budget of $510k that has a 16-month operating reserve. As a relatively young organization (20 years), some months 10 or so years ago our income was lean and we struggled to make payroll. As a result, the board responsibly focused on building an operating reserve. Most members think that an operating reserve can never be too big. I’ve been pushing to invest/spend 1/2 of the reserve on hiring new staff to better serve our mission. I’m getting pushback. What “arguments” do you suggest that I use to convince them that our reserve is far more than ample and would be best used “investing” now in the organization’s mission?

[Dana-B-Forum-Moderator]

Hi Elisabeth – In terms of potential arguments, I think it might just help to be very clear on how each of the staff investments that you’re proposing could contribute to further advancing the mission, improving operating performance and/or securing/generating/maintaining new and current revenue sources to further build sustainability. Depending on your current operating and financial position and needs, there’s a possibility that some portion of reserves may be needed to fund other short or long-term needs (investments in fixed assets, short-term cash flow shortages, etc.), but I think anything you could do to link your proposed staff investments to your strategies for sustainability could be helpful here.

Curious to hear other’s thoughts. Let us know what you think!