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A WHITEPAPERBY: The NonprofitOperating ReservesInitiative WorkgroupIn spring 2008, a NonprofitOperatingReservesInitiativeWorkgroup (see member list onpage 10) comprising experiencedindividuals representing multiplefacets of the nonprofit sector wasconvened with the objective of:1. DefininganReserve Ratio”“Operating2. Using the ratio to focusattention on the importanceof nonprofit financial stability.The Nonprofit Operating ReservesInitiative Workgroup reachedconsensus on definitions foroperating reserves and the“Operating Reserve Ratio.” Theworkgroup also reached aconclusion on what constitutesadequate operating reserves.WorkgroupmemberRichardLarkin had previously concludedand written that the answer is: itdepends.” Drawing on Mr. Larkin’sinsight and experience theworkgroup concluded, there is noone size fits all ratio orbenchmark.However, theWorkgroup effort resulted in someinsightfulconclusionsandrecommendations that are sharedin this White Paper.Final note: The Operating ReserveRatio is one of a number ofimportant and useful financialviability indicators that addressvarious aspects of financial health.MAINTAINING NONPROFIT OPERATING RESERVESAn Organizational Imperative for Nonprofit Financial StabilityDecember 2008A top priority for nonprofit leaders needs to be maintaining operating reserves atlevels adequate for achieving financial stability. While this may seem obvious,preliminary research indicates that many organizations neglect to put aside fundsthat will help them preserve their capacity to deliver on their missions in the eventof unforeseen financial shortages.The fact is numerous nonprofits have negative reserves and are already at risk. TheWork Group (see side bar) recognizes that the current economic crisis threatensthe very existence of thousands of nonprofit organizations. At a time whennonprofit organizations may be focused on survival, the thought of buildingreserves may seem a distant priority. But for organizations currently just hangingon which expect to survive this crisis and those in relatively stable current financialcondition which seek to fortify their position, the Work Group encouragesincluding operating reserves in the planning process. Organizations which reviewtheir policies closely and devise plans for replenishing their operating reserves toan agreed upon adequate level will emerge from this current economic crisis in astronger financial position, positioned to withstand the next challenge that arises.Briefly, operating reserves are the portion of “unrestricted net assets” (see Figure 1)that nonprofit boards maintain or designate for use in emergencies to sustainfinancial operations in the unanticipated event of significant unbudgeted increasesin operating expenses and/or losses in operating revenues. “Unrestricted netassets” is a required line item in the balance sheets of financial statementsprepared in accordance with generally accepted accounting principles (GAAP) andIRS Forms 990 of nonprofit organizations. [See “Operating Reserve Ratio” ‐ page 2]Figure 1 ‐‐ Suggested balance sheet net asset terms presented in an illustration that all nonprofitCEOs and boards need to understand.Unrestricted Net AssetsEquity in fixedAvailable*Unrestricted Net AssetsUnrestricted Net Assets(Excluded from availableunrestricted net assets*)Operating ReservesBoard Designated(Suggested Minimum Goal:25% of annual operatingexpense budget)(Set aside for strategic purposesand/or quasi endowment)* Available unrestricted net assets could also exclude the equity in other non‐current, non‐liquid net assetssuch as long‐term receivables, inventory, prepaid expenses and deposits held by others.
MAINTAINING NONPROFIT OPERATING RESERVES: AN ORGANIZATIONAL IMPERATIVE FOR NONPROFIT STABILITYThe amount of accumulated “unrestricted netassets” is increased or decreased as the resultof annual operating surpluses or deficits.Nonprofits pursue financial stability bybudgeting for – and then achieving reasonable,modest surpluses year after year until they havemet their operating reserves objectives.25 percent or 3 months of the annual expensebudget.The classification of unrestricted net assets inthe balance sheet, as depicted in Figure 1, iscritical to developing a clear and accuratesnapshot of an organization’s financial position.“Available unrestricted net assets” are theportion of total unrestricted net assets that areavailable for use. A simple definition for“available unrestricted net assets” isunrestricted net assets less the equity in fixedassets – i.e., fixed assets net of related long‐term debt. A more conservative definition of“available unrestricted net assets” is footnotedin Figure 1.Each organization needs todetermine if the simple definition can be usedreliably for measuring Operating Reserves or if itneeds to use a more conservative definition.Two Inter‐Related QuestionsNonprofits can ask the following two questionsto facilitate internal discussions about adequateoperating reserves for financial stability.1. What does it mean to be financially stable?2. What are adequate operating reserves?According to Richard Larkin, CPA, NationalTechnical Director of Not‐for‐Profit Accountingand Auditing, BDO Seidman, LLP, the answer is,“It depends.” Mr. Larkin goes on to say, “It isbest to start by saying that based on theliterature available there is simply no singlecorrect solution for all organizations. Despitethe importance of the issue there exists noagreed upon industry benchmark.Tocomplicate matters further, such benchmarks asare commonly used must be viewed in thecontext of the particular organization to whichthey are being applied.”1“Operating Reserves” are that portion of“available unrestricted net assets” that anorganization’s board maintains and/or hasformally designated, or “reserved” for use inemergencies to sustain financial operations inthe unanticipated event of significantunbudgeted increases in operating expensesand/or losses in operating revenues. Theadequacy of operating reserves beyond theminimum is variable and depends on factorssuch as the reliability of operating revenues,impact of economic conditions among others.OPERATING RESERVE RATIOThe Nonprofit Operating Reserves InitiativeWorkgroup recommends that nonprofit boardsestablish a minimum Operating Reserve ratiopolicy. An organization’s Operating ReserveRatio can be calculated in terms of a percentage(operating reserves divided by the annualexpense budget) or number of months(operating reserves divided by the averagemonthly expense budget).The minimumoperating reserve ratio at the lowest pointduring the year suggested by the Workgroup is1IRS FORM 990 AS HELPFUL TOOLThe Workgroup concluded that the Form 990provides a good tool for illustrating the contentof the Operating Reserve Ratio. Using the Form990, Operating Reserves consist of Unrestrictednet assets less fixed assets net of debt. Fixedassets net of debt equals (Land, buildings, andequipment ‐‐ i.e., fixed assets) minusDetermining Appropriate Levels of Reserves, Richard Larkin, CPA, National Technical Director of Not‐for‐Profit Accounting and Auditing, BDO Seidman, LLP, Bethesda Maryland.2
MAINTAINING NONPROFIT OPERATING RESERVES: AN ORGANIZATIONAL IMPERATIVE FOR NONPROFIT STABILITYcrisis. For example, it may be having difficultymeeting payrolls, and/or may be seriouslybehind in paying its bills. It is likely operatinghand‐to‐mouth ‐‐ disbursing funds as soon asthey are deposited. The staff and members ofthe board can be devoting a disproportionalamount of time on day‐to‐day financialmanagement, resulting in a reduction in thedelivery of program services. In some cases,staff may be asked to forego all or portions oftheir salaries. And, some staff members mayleave for a more stable environment or may besubject to furloughs or layoffs. Internal controlsmay be ignored with less staff to do more work.(Mortgages and other notes payable). Annualexpenses consist of (Total functional expenses)less (Depreciation).NEARLY 50% HAVE LESS THAN THE MINIMUMOrganizations with significant temporarily orpermanently restricted net assets may beborrowing from those funds to cover deficits inunrestricted net assets available for operations.This is a very serious financial managementproblem because it violates the organization’sfiduciary responsibility to assure that restrictedfunds are used only for purposes designated bythe donors.Preliminary research indicates that a largeportion of nonprofits may not have sufficientreserves to weather unexpected setbacks. Forexample, according to analysis of IRS Form 990data (2003)2, 1,516 or nearly fifty percent of3,154 nonprofits located in Washington, D.C.had year‐end operating reserve ratios below thesuggested minimum of 25 percent or less than 3months of their annual expense budget. Infact, 996 nonprofits (32%) had reserve ratios ofzero to 25 percent while 520 nonprofits (17%)actually had negative reserve ratios.DESIGNATED FOR INTERNAL MANAGEMENT,NOT OUTSIDE WATCHDOG GROUPSPrecisely because “it depends,” the NonprofitOperating Reserves Initiative Workgroupadamantlymaintainsthatanyrecommendations and/or guidelines outlinedhere are for the purpose of helping staff andboards better address the need for planning for,and measuring financial stability for theirparticular organization. Using “it depends” asthe underlying theme for this Whitepaper isexpected to put to rest any thought of usingOperating Reserve Ratios to measure the“worthiness” of a nonprofit organization or tocompare one organization with another.IMPACT OF NEGATIVE OPERATING RESERVERATIOSWhen the Operating Reserve Ratio is negative,be experiencing a serious, disruptive financial2National Center of Charitable Statistics, Center on Nonprofits and Philanthropy at the Urban Institute, IRS Form 990 data, circa 2003.3
MAINTAINING NONPROFIT OPERATING RESERVES: AN ORGANIZATIONAL IMPERATIVE FOR NONPROFIT STABILITYAPPLICABILITYa) day‐to‐day fluctuations in normal cash flowrequirements, andb) unusual and/or unforeseen emergency cashrequirements.The Nonprofit Operating Reserves InitiativeWorkgroup believes this discussion is of value forall tax exempt organizations. Whether the annualbudget is 100,000 or 10 million, committing toand holding an adequate reserve is an important,prudent business practice.ESTABLISH A POLICYKey steps for any organization in formulatingthe policy.1. Establish a minimum level for anadequate operating reserve ratio at thelowest point during the year. (TheNonprofit OperatingReservesInitiativeWorkgroup suggestsA board may find it useful for internalaccounting and reporting during the year25% of the annualto divide Operating Reserves into twooperatingexpenseunrestricted net asset accounts: “Boardbudget as a startingDesignated Operating Reserves” and“Operating Funds.”The “Boardpoint.)Preciselybecause“itdepends,” the NonprofitOperating Reserves InitiativeWorkgroup recommends thatevery nonprofit organizationhave a written Reserve Policythatdefinesitsown“adequate” operating reserveDesignated Operating Reserves” accountwould show the portion of Operating2. Definehowthelevel, defines how itsReserves that the board has designated foroperatingreserveoperatingreservesareuse in unusual or unforeseen financialratio will be calculatedcalculated and provides theemergencies. This net asset account[e.g., use formulacould serve as an internal line of creditrationale that led staff andwithboardspecifiedtermsofuseandshownintheBoard to this conclusion. Inreplenishment.The “Operating“OperatingReservegeneral, for calculating theFunds” net asset account would showRatiosectiononpageOperating Reserve Ratio, thethe remaining portion of “OperatingReserves” and would fluctuate up or2 or another formulaWorkgroup is strongly biaseddown according to day‐to‐day changesdesigned to meettoward the simplest and mostin normal cash flow activity.specificoperatingwidely applicable formula.reserves needs].[See “Operating ReserveRatio” on page 2.] The group also felt that3. Define how reserves will be invested as partoperating reserves in an amount determined byof the overall Investment Policy Statementan organization’s board to be “adequate”based on short, intermediate and long‐termshould be accumulated in advance of otherneeds.board designated funds.4. Define frequency of measuring andreporting on operating reserves. (As aFORMULATING THE POLICYminimum, the Nonprofit Operating ReservesEven the smallest nonprofit organizations couldInitiative Workgroup recommends aestablish at least a simple reserves policy withmonthly report to the CEO and a quarterlythe overarching purpose being to build andreporting system to the board’s financemaintain a certain level of positive unrestrictedcommittee.)net assets that can accommodate:4
MAINTAINING NONPROFIT OPERATING RESERVES: AN ORGANIZATIONAL IMPERATIVE FOR NONPROFIT STABILITY5. Define methods by which the operatingreserve will be replenished if it is used, orfor any reason drops below the policy‐mandated minimum threshold at any pointduring the year. One example would be toestablish a surplus budget in order toreplace the lost revenue. For organizationswith additional, non‐operating BoardDesignated funds, the recommended policywould be to re‐designate portions of thoseBoard Designated special purpose funds asneeded to replace lost value of operatingreserves.for additional Board Designated special purposefunds and/or Quasi‐Endowments are logicalnext steps to allow for planned, strategicprogram development that might include newprograms, capital purchases, staff expansion,for example. By design this higher level offinancial flexibility allows the organization toenhance quality, introduce new programelements and grow without compromising orjeopardizing core program delivery to existingconstituents and stakeholders.“NONPROFIT” DOESN’T MEAN YOU CAN’T MAKEA “PROFIT” – SO STRIVE TO HAVE A SURPLUS“IT DEPENDS” FACTORSThe most financially stable nonprofits are beingproactive in building reserves through annualsurpluses, but as evidenced by the snapshot ofDC nonprofits there are still many nonprofitsliving dangerously close to the bone. The staffand boards of nonprofits, as well as theirfunders, need to understand and agree not onlythat it is ok to save money and build a reserve,but that it is a critical necessity for long‐termsustainability. For nonprofits struggling butstriving to reach a certain operating reservesthreshold, the Nonprofit Operating ReservesInitiative Workgroup advocates specificallybudgeting for it as a disciplined approach toachieving the goal. In some cases this may alsorequire a rigorous evaluation of theorganization’s current operating model that hasled to the chronic shortfalls.There are numerous “it depends” factors thatmake it impossible to construct a standard, onesize fits all formula for what is the correct oradequate level of operating reserves for allorganizations. In general, there is a continuumof variables that might influence what definesthe appropriate operating reserve level for anygiven organization. The extent to which anorganization finds itself more or less subject tothe variables will influence how far above thesuggested 25% baseline the adequate orappropriate reserve level is set. Some of thesevariables are outlined in detail in Appendix A –“It Depends” – Factors to Be Considered inDeciding What Amount of Reserves anOrganization Will Plan to Maintain.BEYOND OPERATING RESERVESPROGRAM DEVELOPMENT–FOR1. When an organization operates within abalanced budget that includes a modestsurplus (e.g., 5%), operating revenues forthe year will exceed operating expenses,with the result that the availableunrestricted net assets would be increasedat the end of each year. An organizationwith no reserves at all could thus plan tobuild its Operating Reserve Ratio to theThe Nonprofit Operating Reserves InitiativeWorkgroup suggests that adequate operatingreserves are the basis for financial stability.However, for organizations that have a writtenpolicy and have successfully met the policyparameters for their Operating Reserve,establishing and budgeting surpluses needed5
MAINTAINING NONPROFIT OPERATING RESERVES: AN ORGANIZATIONAL IMPERATIVE FOR NONPROFIT STABILITYsuggested minimum 25% target over 5 to 6years of modest surpluses.WHO ARE STAKEHOLDERS WHAT CAN THEY DO?The stakeholders that can help nonprofits achievefinancial stability include:2. The need for an operating reserve is clear:Without a reserve, the organization can bethrown into cash flow stress and becomedistracted from good long‐term decision‐making or forced to make expensive short‐term crisis‐based decisions, or worse; it maynot have the resources to continue deliveryof its programs. CEOs, CFOs and boards of nonprofitorganizations. Grant making community, such as programofficers of foundations, regionalassociations of grant makers andgovernment agencies.Over time, based on its existing availableoperating reserves and the percent of budgetsurplus added, the organization will have usedits “profits” to prudently build the operatingreserve to the level established in theorganization’s policy as adequate or optimal. Associations of nonprofits and umbrellagroups – geographic and subsector. Accountants such as individual CFOs andCPAs, CFO groups and CPA societies Management support organizationsFINANCIAL STABILITY – IT’S EVERYONE’SRESPONSIBILITY Academic centers with nonprofit programsAfter many hours of discussion and numerousiterations of this Whitepaper, the NonprofitOperating Reserves Initiative Workgroup’sconclusions are simple. Financial institutions serving the nonprofitsectorAll groups can encourage nonprofits to: Establish comprehensive written ReservesPolicies for maintaining adequateoperating reserves for financial stabilityand generating special purpose funds foroptimal mission accomplishment1. Nonprofit organizations will be bettermanaged and more financially stable if theyhave a policy defining an Operating ReserveRatio level appropriate for the specificconditions in which that particularorganization operates, with full support ofthe Board, CEO, CFO and other seniorleadership. Employ budgeting and accountingprocedures that implement their ReservesPolicy –effectively.2. Because “it depends” on numerousvariables, which are best known andapplied to the decision by the organizationitself, the best policy will be defined by theorganization rather than by adhering tosome arbitrary benchmark imposed byoutsiders.Nonprofit Board members, CEOs and CFOs can askfor and receive at least quarterly reports.Resource providers can encourage and permitbudgeting surpluses and building reserves.6
MAINTAINING NONPROFIT OPERATING RESERVES: AN ORGANIZATIONAL IMPERATIVE FOR NONPROFIT STABILITY3. By taking this conscious and proactiveapproach to setting its own financial goals,the staff and board take responsibility forthe financial stability of the organization.4.HELPFUL RESOURCES RELATED TO NONPROFITOPERATING RESERVES INITIATIVE Working Papers and Helpful Resources of theNonprofit Operating Reserves Initiative Workgroupcan be found at the website (see p.10 for link)It is important that institutional funders,individual donors, and other communityleaders understand the need for small andmidsized nonprofit organizations to buildand sensibly use their unrestricted netassets to create an operating reserve thatachieves financial sustainability.provided by Center on Nonprofits and Philanthropy atThe Urban Institute, which serves as secretariat to theWorkgroup. Supplements to Nonprofit Operating ReservesWhite Paper. Impact of inadequate Operating Reserves. Defining the Operating Reserves Ratio. “It Depends” – Factors to Be Considered inDeciding What Amount of Reserves anOrganization Will Plan to Maintain. Initial Nonprofit Operating Reserve Ratio WorkingDocuments Nonprofit Operating Reserve Ratio (primaryCALL TO ACTIONThe preliminary facts tell us that nearly 50% ofnonprofit organizations in the DC metropolitanarea have operating reserves of less than 25%.As a result of these preliminary findings theUrban Institute is planning to do a more in‐depth study of the data. This research projectwill help better define and quantify the state offinancial stability among area nonprofits. And,while that information will prove extremelyvaluable, you as a board member, a CFO, adonor, a funder or any other nonprofitstakeholder need not wait to take action. If youknow of an organization that appears to bestruggling to achieve this objective, share thisinformation with key leadership. If yourorganization doesn’t have a policy, establishone. If your organization has a policy but hasnot reviewed it in the last three years, pull it outand evaluate it.working paper for White Paper – August draft) Summary Nonprofit Operating Reserve Ratio Related papers by Richard F. Larkin, CPA, BDOSeidman, LLP Nonprofits and Squirrels – or, How big a reservedo you need? Determining Appropriate levels of Reserves. Illustrative reserves policies United Way of America Reserves Policy Illustrative Guidelines for Developing aReserves policy Reserves policy toolkit – 1.0 (Scheduled to becompleted Spring 2008.)All documents are downloadable in PDF format and alsoavailable in word on request to Bill Levis(qrlevis@aol.com). The views recommendations andsuggestions expressed in the White Paper and otherdocuments are those of the Nonprofit OperatingReserves Initiative Workgroup. Some Workgroupmembers may disagree on some points. Workgrouppositions on the issues have been established on aconsensus basis. Workgroup members representthemselves and not their affiliations. These documentsare not research‐based papers of the Center onNonprofits and Philanthropy at The Urban Institute.There is no one size fits all solution, but there isa solution that is right for every organization ifthe key stakeholders take the time and effort tounderstand and define what is best for yoursituation. The region depends so much onnonprofits to deliver myriad services to valuedcitizens of our community. And, achievingfinancial stability is a critical component of yourmission sustainability. Take the necessary stepsto be financially stable so that our communitycan continue to benefit from your mission.7
MAINTAINING NONPROFIT OPERATING RESERVES: AN ORGANIZATIONAL IMPERATIVE FOR NONPROFIT STABILITYAppendix A ‐ “IT DEPENDS”Factors to Be Considered in Deciding What Amount of Reserves an Organization Will Plan to MaintainBy Richard F. Larkin, C.P.A., BDO Seidman, LLP (Member Nonprofit Operating Reserves Initiative Workgroup) Every organization should plan for its reserves. Consider how the factors below might affect you. Your board,with advice of management, should adopt a formal policy for the reserve level it wishes to maintain, and reviewthat policy regularly. Of course you cannot just make reserves appear on command; it may take an extendedperiod to accumulate the desired level.Following is a list of factors to be considered by nonprofit organizations in making that decision. In many cases,no one of these factors will be determinative by itself; all applicable factors should be considered together.Factors whose presence would indicate that theorganization probably should try to maintain a higher*level of reservesOperating Funds [for financial sustainability]The main sources of expendable revenue may be subject tolarge unexpected negative fluctuations.1The nature of our activities is such that there is a high risk ofthere being significant unpredictable demands on ourresources.2Our regular day‐to‐day fluctuations in income and expensesare significant.3Our governing board takes a longer‐term view of provisionof services and its attitude is to be very sure there arealways resources available.Our governing board’s approach to planning and budgetingis a conservative and prudent one. While the organizationmay never have faced an event requiring the extended useof our reserves, the board considers this a fundamentallysound financial management practice.Our planning and budgeting processes have historicallyproved to be less accurate in forecasting financial results.4Adequate backup sources of resources are not in sight.The board is not trying to expand the organization.Board Designated Funds [for optimal missionaccomplishment]The nature of our activities is such that there is a highlikelihood that unexpected opportunities will come ourway, requiring additional (available) resources to takeadvantage of these opportunities.7There is a sense that a change in organizational directionmay be considered desirable in the not‐so‐distant future.8Factors whose presence would indicate that theorganization can likely get along with a lower* level ofreservesOur main sources of revenue are generally not subjectto large unexpected negative fluctuations.It is less likely that significant unexpected demands onour resources will occur.Our regular day‐to‐day fluctuations are relatively minor.The governing board believes it is of overridingimportance that every possible resource is used in theprovision of current program services.The governing board is generally willing to live ‘day‐to‐day’ and trust that resources will be available whenneeded. The board believes it is of overridingimportance that every possible resource is used in theprovision of current program services.Our planning and budgeting processes have historicallyproved to be fairly accurate in forecasting financialresults.We are confident that adequate backup sources ofresources are likely to be available in a pinch.5The board is trying to aggressively expand theorganization and available resources are to be used forexpansion, including portions of its operating reserves 6The nature of our activities is such it is not very likelythat such opportunities will come our way requiringadditional (available) resources.There is no change in organizational directionanticipated any time soon.*Note: No attempt is made here to quantify “higher” or “lower” reserves. That has to be done by each organization, taking into considerationthe wide range of circumstances that impact the organization’s budget and operations. A reserve level that might be considered high for oneorganization may be completely inadequate for another. IT DEPENDS.FOOTNOTE references in this table are detailed on page 9.8
MAINTAINING NONPROFIT OPERATING RESERVES: AN ORGANIZATIONAL IMPERATIVE FOR NONPROFIT STABILITYAppendix A ‐ “IT DEPENDS” ContinuedFOOTNOTES corresponding with references made in Table A on page 8.1. Examples might include: Unexpected, unplanned events that negatively affect charitable giving and fee income; naturaldisasters such as earthquakes, floods and hurricanes; a blizzard the day of your big annual gala fundraiser; general pooreconomic conditions or rising costs; organizational problems such as volunteer and staff misdeeds or lawsuits generatingunfavorable publicity which turns away customers and donors; overly‐optimistic budgeting of anticipated revenue (verycommon); dependency on one donor for 10% or more of the annual budget; short‐term or non‐renewable agreements suchas some cause‐related marketing contracts and corporate sponsorships; many other reasons.2. Examples might again include: Unexpected, unplanned events that negatively affect giving and/or increase demand for ourservices (economic downturn, unusual weather patterns) Organizations most likely affected are disaster or situationalresponse organizations – for example the Red Cross; United Way organizations, health and human services organizationssuch as food kitchens, homeless shelters.3. Payrolls have to be paid every payday. The electric company is likely to want cash, not a promise, to keep the power flowing.But income often comes in spurts, especially contributions. Also there may be seasonal factors. For example, manycontributions probably arrive in December as donors do personal tax planning. Colleges collect tuition at the beginning ofeach semester, and then have to live off it until next semester. Orchestras sell season tickets in the spring to pay forconcerts to be put on over the following winter. On the other side, utility costs are probably higher in the winter andsummer (heating and air conditioning), but lower in between. Expenses of our annual conference will be bunched aroundthe time of the conference.4. For example, you have had numerous instances of situations such as cost overruns, or, ‘The project that everyone thoughtwould succeed, didn’t.’ ‘The foundation grant that you thought was in the bag wasn’t.’ ‘The big fundraising event failed tomeet expectations.’5. This is your Plan B. For nonprofits this can be some combination of: cash on hand, investments and surplus assets that can besold, a bank line‐of‐credit, a foundation or other institutional funder that you know would help if asked, some individualdonors who could be counted on if the going gets really rough, a plan to cut expenses to a bare bones level for a while. If anorganization uses this to justify not establishing a reserve, they should define in writing this “Plan B” which names sources(to include: held assets, organizations and individuals) from which funds would come.6. For example, the organization could be new and trying to reach a sustainable size or have a special opportunity that warrantsrisking a portion of its operating reserves.7. For example, recently an extremely rare major dinosaur fossil became available at public auction. Museums knew that itwould sell for a high price, and it did. If your museum wanted this for its collection, it had to have resources available tocover the cost.8. A long‐standing program just isn’t what’s best any more. Community needs have shifted. Resources will be required tophase out the old and bring in the new. The parallel here is to seed capital in a business.9
MAINTAINING NONPROFIT OPERATING RESERVES: AN ORGANIZATIONAL IMPERATIVE FOR NONPROFIT STABILITYAppen
complicate matters further, such benchmarks as are commonly used must be viewed in the context of the particular organization to which they are being applied."1 OPERATING RESERVE RATIO The Nonprofit Operating Reserves Initiative Workgroup recommends that nonprofit boards
