Why a Nonprofit Company Should Always Have Capital Reserves
Nonprofits are a profile in perseverance. More than any other type of business, they understand that you should not let a problem defeat you. Instead, it should make you stronger. That’s one reason why a nonprofit company should always have capital reserves.
The value of a nonprofit should be measured in what it gives, not how much it takes in. Unfortunately, many times a nonprofit business does not bring in enough through government loans and grants and donations. A nonprofit company should always have capital reserves in order to continue programs and fulfill its mission uninterrupted.
Why Having Capital Reserves is Important
More than any other organization, a non profit business owner should make sure you have back up capital, due to the nature of your expenses and revenue. Revenue at most non profits comes in big sums, often paid out sporadically throughout your fiscal year.
This may leave you unable to pay bills or handle other daily operating expenses. That includes your biggest expense, which is typically making payroll. Payroll must be paid on time and what most non profits don’t know is that you are breaking state and federal laws if you don’t pay your people on time.
An unexpected financial shortfall can happen to a not for profit organization at any time. An expected donation that was not received, equipment breakdown or personnel issues can result in an emergency. Extra cash on hand means you can handle these kinds of situations and still make payroll.
If a Nonprofit Company Should Always Have Capital Reserves, Who Provides That Help
Financing Solutions (www.financingsolutionsnow.com) is one of the leading providers of lines of credit (LOC) to nonprofits. A LOC allows your organization to have access to inexpensive cash when you need it.
Depending on your size, your organization will be approved for a fixed amount of money, which will be sitting there until you need it. If you don’t use the fast business cash, there are no charges. Most importantly, Financing Solutions doesn’t charge you to apply for or set up the account.
As an executive director, CFO or board member, it is your duty to make sure that your organization is aware that a nonprofit LOC is good idea to have in place, just in case. Once you understand the concept, you can make the decisions that are right for your organization.
How Your Nonprofit Company Should Handle Capital Reserves
Some people believe that a rainy day for nonprofits only involves late government grant or checks or a long term funding resource suddenly drying up. However, you could also experience a leaky roof or miscalculation of revenue projections. In these cases, capital reserves may help, but only if used properly.
One thing you should do is to establish a cash reserves policy. This will help you determine factors such as which types of circumstances will dictate dipping into your cash reserves and a time frame for repayment.
You must also decide how much to keep in cash reserves. While there is no set number, as each nonprofit is different, experts recommend that you have enough to survive for at least three months or more.
The best way to handle capital reserves is to get nonprofit business funding from Financing Solutions. This will ensure that your capital reserves will help to grow your business long into the future.