Big Picture Financial Planning for Nonprofits (part 3 of a series)

Big Picture Financial Planning for Nonprofits (part 3 of a series)

By Tom Wilson Major Gifts Guru

So far in parts 1 and 2, we covered the basic keys for financial stabilization for a nonprofit organization – a balanced budget, a 5% contingency fund, and no debt.

What’s next?

The magic bullet for financial stabilization . . . (drum roll and cymbal crash) . . . reserve funds.

Your organization should be holding 3 to 6 months of reserve cash in the bank. If you need to borrow money for an operating problem, or a building repair, borrow from yourself not from a financial institution.

And, have a strict payback policy (no interest is fine, but pay back the reserve fund over the next 1 to 3 years to get back to the 6-month reserve target).

A corollary issue – if you have unrestricted gifts (usually bequests) that the board has designated as endowment (quasi-endowment or temporarily restricted funds), please move enough of these funds from “endowment” to reserve fund status. I was involved with one endowment capital campaign and came to find out from irate donors that the Endowment fund had been “raided” a few years earlier. Funds were needed to complete overruns for a construction project, but they were taken from endowment (with a small “e”) that was board designated. So yes, they could be used. Endowment (with a big “E”) that is donor restricted cannot be touched. Endowment fundraising is hard enough without confusing people with donor restricted funds (true endowment or permanently restricted funds) and board designated funds (quasi endowment or temporarily restricted funds).

Set up reserves right now and avoid future problems.

For a major gifts fundraiser, all of this may seem dull and hard to market to donors –money for an operating contingency, to pay off debt, and to build cash reserves. But, you’d be surprised. For people who made their money in the business world all of these issues make sense. Their company would never operate without reserves and working capital.

In fact, when they realize all of the factors that have been hampering your organization because of the lack of capital they are eager to help.

But, there’s also a few more elements to stabilization fundraising that can make it more exciting to donors.

To read the rest of the series, please see below:

• Big Picture Financial Planning for Nonprofits (part 1 of a series)
• Big Picture Financial Planning for Nonprofits (part 2 of a series)
• Big Picture Financial Planning for Nonprofits (part 4 of a series)
• Big Picture Financial Planning for Nonprofits (part 6 of a series)
• Big Picture Financial Planning for Nonprofits (part 5 of a series)
• Big Picture Financial Planning for Nonprofits (part 7 of a series)
• Big Picture Financial Planning for Nonprofits (part 8 of a series)

Permanent Link: Big Picture Financial Planning for Nonprofits (part 3 of a series)

http://majorgiftsguru.com/2009/04/big-picture-financial-planning-for_20.html