Are Your Operating Reserves Enough?

Operating reserves — generally, assets without donor restrictions that you can tap into easily — frequently are referred to as "rainy day funds." However, stable reserves are critical for far more pressing reasons than the metaphorical rainy day.

Solid operating reserves demonstrate responsible financial stewardship to your stakeholders. Reserves also increase the odds that your organization can achieve self-sufficiency, making your organization less vulnerable to unpredictable or cyclical revenue streams and government funding cutbacks.

Adequate reserves put your organization in a better position to handle market-based swings in investment income and enable it to cover unbudgeted expenses (for example, a roof replacement not covered by insurance). Reserves can protect against staff or program cost reductions that would prevent you from meeting your mission, and can also empower your organization to take advantage of opportunities (such as the availability of new