Fundraising for Small Groups Newsletter

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June 22, 2017

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Saving for a Rainy Day

by Deane Brengle



I don't have to be a weatherman to predict that someday it's going to rain on your nonprofit. And it's going to rain hard!

I don't mean literally. No, I mean you're going to have something happen to your nonprofit that devastates your operating account balance.

  • Like a terrorist attack (didn't 9-11 affect your fundraising?).
  • Or a scandal (your president or executive director who raises most of your funds is involved in a horrific crime).
  • Or a thief (someone in your organization embezzles funds ... most of them).
  • Or your area has a natural disaster (flood, tornado, earthquake, hurricane).
  • Or your major donor dies (without leaving you anything in their will).
  • Or your major fundraiser bombs (oh yes, you remember the last time that happened).
  • Or the heating system in your building calls it quits (it is kind of important to have heat in the winter).
Yes, it is going to happen. I'm willing to bet it is. Are you willing to bet it won't?

If you haven't got a rainy day or reserve fund you should. It's what keeps your nonprofits work moving forward after a sudden financial hit. But according to a 2006 survey 31% of all nonprofits surveyed said they didn't maintain a reserve fund. The same survey reported that 1 in 3 of the nonprofits that did have a reserve fund tapped or depleted it. That's a 1 in 3 chance lightning is going to strike your nonprofit! Let's get ready for it.

Creating the Reserve Fund

The first step in creating a reserve fund is figuring out how much you need to fund it.

Every nonprofit will have a different answer to "How much money?" depending on its set up and needs. Most of you will use the formula that determines how much your operating budget is each month and then multiplies that amount by the number of months you are planning for. The great majority of nonprofits budget for 3 to 6 months of operating expenses plus unknown emergencies and/or opportunities. But up to a year is not uncommon too.

Just remember it isn't so important to have a fixed amount as it is a percentage for a final number. If you budget a fixed number each year you won't take into account the variables that a percentage will cover. If your new fundraising event is rained out or you get an opportunity to purchase a building, a percentage will have you covered. When planning for your reserve fund your board of directors should brainstorm the possibilities, both positive and negative, and set some numbers to them.

After your board arrives at a figure it needs to establish the policies concerning how the reserve fund will be used and any procedures to be followed when spending those dollars. These procedures should specify exactly how the funds are handled. Also, designating your reserve fund dollars to specific areas, programs, projects, and expenses will keep you out of hot water with your members and the IRS. Nobody likes the appearance of a slush fund.

Funding the Reserve Fund

The second step is to fund the reserve fund. I won't candy coat this, it's tough. Most of you probably don't have enough funds to operate the way you would like to much less save for a reserve fund. But you must.

There are two basic ways to do this.

  1. Squeeze your budget a little tighter and designate those extra funds to the reserve fund. Every budget has some extras, it's just how deep and painfully you decide to cut.

  2. Add extra fundraisers to fund the reserve fund. You will have to be careful with this one. Creating fundraising burnout won't help your cause even if it does create a reserve fund. You might have to use that reserve fund quicker than you think.

  • Find a fundraising partner.

    Recently, the students of St. Patrick's School in Kent, Ohio were being recognized for their outstanding fundraising achievement for having donated more than $66,000 dollars to St Judes Research Hospital since 1995; more than $32,000 in the last six years to the American Heart Association for the Hoops for Hearts and the Jump-a-Thon; more than 1,375 pounds of pop tabs to Akron Children's Hospital; more than $4,000 for Hurricane Katrina Relief; and more than $9,000 donated to brain cancer research through Alex's Lemonade Stands, which was spearheaded by the Huscroft family at St. Patrick's after a classmate lost his battle with brain cancer last school year.

  • Kick that ordinary fundraiser up to the next level.

    The Tennessee Philharmonic Symphony Orchestra had a Spaghetti fundraiser just last weekend. The evening included a spaghetti entree, wine and assorted cheesecakes for dessert, plus local entertainment including an upbeat local group named The Ditzy Dots and a medley from the Broadway musical “Oklahoma.” Tickets cost $25 per person. $25 per person for a spaghetti dinner is creative!

  • Add a low impact fundraiser.

    The Woman's Center of Rhode Island collects cell phones and recycles them as a fundraiser. Because they are a safe house it is extremely difficult for them to collect phones without giving away their location. So they are constantly looking for locations in Providence with parking and easy to access for their donors to drop off and donate their used cell phones. They also enlist local organizations to hold Good Corporate Neighbor Cell Phone Drives in their offices. These cell phone drives have helped raise more than $5,000 in general operating funds in just over 18 months!

Investing the Money

The third step is how to invest the money. Once you've got it you need to keep it safe, accessible, and earning more money for you.

There are many investment options open to you so be sure and check them all out and choose wisely.

Details to consider are:

  • Fees and penalties that can chip away at your hard earned funds.
  • Minimum balance amounts and penalties if you drop below that limit.
  • Fees for withdrawing funds.
  • Availability- how fast can you get to your funds.

Investment Vehicles to consider:

  • Interest bearing checking or savings accounts.
  • Certificates of deposit.
  • Treasury bills.
  • Bond funds.
  • Money market accounts.

Your accountant can help you understand the pros and cons of each type of investment. If you have, or anticipate you will have, a large reserve fund you should consult a professional financial advisor who can help you manage your dollars to their fullest potential.

Storm Clouds Are Gathering

I can see storm clouds gathering at the horizon. Are they coming your way?

You better get a reserve fund discussion added to your board's agenda for the next meeting. Just in case.

***********************


About the Author:

Deane Brengle is the editor of several free online publications that cover fundraising for small nonprofit groups. You can visit these publications and read more about fundraising in articles by him and other experts in the field at The Fund$Raiser Cyberzine, The Fundraising for Small Groups Newsletter, and Fundraising Booklets.





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