Mission-driven nonprofits usually tend to operate with limited resources and uncertain futures. Financing may be dependent on public funding or grant sources. When those resources suddenly become unavailable, it’s important to have a healthy balance of reserve funds to keep your organization afloat.
Although it can be difficult to save when you’re working with a tight budget, a nonprofit financial safety net may mean the difference between continuing or stopping operations. As noted by VIS Volunteers, a variety of factors can significantly influence your nonprofit’s fiscal health; economic downturns, weather events or natural disasters, and even acts of terrorism can bring your work to a standstill. It’s critically important for your organization to continually make consistent contributions to your cash reserves. The amount contributed should be determined by your organization’s chief financial officer together with your board of directors. Likewise, any funds drawn down from reserves should be a board-level decision.
Identify Possible Emergency Scenarios
While it’s hard to foresee exactly how an unexpected financial hardship will occur, it’s helpful to identify some of the most likely causes of a sudden drop in income or a sudden immediate expense. Analyzing some of the more probable causes and effects of hardship will help you to gauge how much you need to have saved.