There could be a fine line between being a “rich” organization; having several months of operating reserves, and being a “poor” organization; worrying about how to keep the doors open and service those in need. All it takes is the “unknown” to occur to change things. That unknown could happen in a blink of an eye.
Unfortunately, nonprofit organizations are not immune to the everyday changes that any other type of business might face. Changing economic, demographic, political, cultural, and other circumstances make it vital for nonprofit organizations to assess their needs for a rainy day fund, or what we call an operating reserve. These reserves are needed to weather through the storm and be able to rise above the unexpected.
The unknown can be experienced through:
• Unexpected shortfalls in revenue
• Unexpected demands on your resources
• Unanticipated opportunities
• Projected incomes that are less than expected
• A need for a change in direction
• Normal day-to-day fluctuations
Have you ever thought about how the above unknowns could affect your organization? Are you able to handle any of these situations if they were to arise?
Nonprofit organizations without an operating reserve can be thrown into cash flow stress and become distracted from good long-term decision-making, or forced to make expensive short-term crisis based decisions, or worse; may not have the resources to continue delivery of its programs. The Nonprofit Operating Reserves Initiative Workgroup believes all tax-exempt organizations should have an operating reserve; whether the annual budget is $100,000 or $110 million. Not only can it save the organization in a crisis, but it’s good business practice.
At this point, many of you out there might be thinking…how in the world can we afford an operating reserve right now? We are just focused on survival. The thought of building reserves is a distant priority. The reality of the matter is the current economic crisis or any crisis can threaten the very existence of thousands of nonprofits; even you! If you are an organization feeling the effects of the current economic situation, this may be the perfect time to re-establish or create operating reserves to help fortify your position for the next crisis. Organizations which review their policies now and begin to devise plans to replenish their operating reserves to an agreed upon level will emerge from this current economic crisis in a stronger financial position, positioned to withstand the next challenge that arises.
So the question goes from can you afford an operating reserve to…can you afford NOT to have an operating reserve?
Don’t wait. Give Blackman & Sloop a call today so we can help you establish or reevaluate your operating reserve!
About Blackman & Sloop CPAs, P.A.:
Blackman & Sloop is a full-service CPA firm headquartered in Chapel Hill, North Carolina and is actively involved in auditing, taxation, management consulting, financial planning, and related services. The firm directs a large part of its services toward providing management with advice on budgeting, forecasts, projections, financing decisions, financial analysis, and tax developments. The firm also performs review and compilation services and prepares not-for-profit, corporate, individual, estate, retirement plan, and trust tax returns as well as technology consulting services regarding installation and training on QuickBooks. Blackman & Sloop provides services in Raleigh, Durham, Chapel Hill, RTP, Hillsborough, Pittsboro, Charlotte, and the rest of North Carolina. To find out more please visit http://www.blackmansloop.com
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