Big Picture Financial Planning for Nonprofits (part 7 of a series)

Big Picture Financial Planning for Nonprofits(part 7 of a series)


By Tom Wilson Major Gifts Guru

Frequently asked questions

1) Is a contingency line really needed for our operating budget?

Yes, look over the past 3 years of your operating budgets to find items that surfaced during the year that nobody had projected. How much money was that each year? What revenue shortfalls were a surprise each year? Think back to the budget juggling the management team had to do when these surprises came to light. What if you’d had a 5% contingency at the time? And, in 2009 how much revenue did you expect that won’t show up this year because of decreased endowment proceeds, etc.

If you don’t need the contingency this year, roll it over to the next year or convert the excess contingency funds to the operating reserve fund.

2) Won’t I get penalized by foundations for having operating reserve funds?

Yes, if you have too much. The Council on Foundations studied this issue. They decided cash reserves up to 100% of your operating budget are okay. More than that are not. One organization had 500% cash reserves and was forced by public opinion to become aggressive in developing new programs to spend down their reserves for the good of society.

3) Can you ever have too much endowment?

Yes, the benchmark is 20% to 30% of your operating budget. I once worked for a place that had 45% of the operating budget coming from endowment. We were a sleeply, slow-moving institution until a new president came in determined to get the endowment working on new educational initiatives and community outreach.

Permanent Link: Big Picture Financial Planning for Nonprofits (part 7 of a series)

http://majorgiftsguru.com/2009/06/big-picture-financial-planning-for.html

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