Every nonprofit will worry about money. Whether you worry about a roof leak on the building, a Board President making off with the savings or just a bad year on the stock market, sometimes the money coming in isn’t as much as the money going out.
I’ve heard time and again about how nonprofits won’t be able to meet some demand if there isn’t an angel donor in the community ready to step in. Or how thanks to the hurricane or market crash “we just can’t keep serving the same way.”
This is an example of how organizations fail. Of how Boards have failed. Or management.
The reality is that every organization should worry about a couple of areas, and the BUDGET IS NOT THE WORRY.
Budgets are great, and the Board should approve them for the next fiscal cycle. Budgets are also “best guesses”. If you say you’ll spend money a certain way and will have a nice cushion at the end of the year, but a tornado destroys your building, your budget is useless.
I always advise organizations to budget, but plan to watch your cash flow, and your reserve.
Cash flow is how much money you have coming and going ongoing. If you have lots of cash in the bank, do you also have ongoing cash? Do you have annual bills that are about to come in?
Reserve is how much you have sitting somewhere that could be tapped into in the event of catastrophe. I recommend at least 3 months of expenses be set aside as quickly as possible for reserve, meaning enough money to pay all the bills for 3 months of operations, without any new money coming in. In a perfect world, I would recommend an organization keep 9-12 months reserve. Any longer, and you’re simply hoarding and not fulfilling your mission. Any less than 3 and you’re likely to have a bad time in a crisis.