The Cash Balance
There is a fine line in any organization when it comes to cash reserves. I read an article this morning about some nonprofit hospitals cash reserves have increased significantly in the last decade and their charitable contributions against those reserves have actually decreased. Interestingly, for-profit hospitals over the same period of time also had increased cash reserves AND had a greater number of charitable contributions.
There is absolutely nothing wrong with a rainy-day fund and having ample cash reserves, however, there is a certain point where you might notice that an organization is becoming too risk-averse if they are hoarding too much cash. In corporate reporting for public organizations, having too much cash on hand might mean that the company isn’t putting enough money into R&D, marketing, etc. Or they might be saving up for a buyback of stock. All things that usually give investors pause.
In a nonprofit organization, the fine line between too much cash and not enough is a little more gray. When you rely on donations alone to fund your mission and pay whatever staff you may have, the temptation is to keep as much cash on hand so that if you do have a big expenditure (i.e. - an A/C chiller unit needs to be replaced - yikes!), you don’t really feel the sting all that much and don’t have to start fundraising just to to have A/C. You get the idea. However, many non-profits truly live paycheck to paycheck and are even drawing on lines of credit to fund operations.
Is this a healthy way to run an organization? In my opinion, no. But it isn’t as easy as just storing up a bunch of cash either. It actually comes back to budgeting responsibly. In a leadership podcast by noted author, Craig Groeschel, he says that his organization sets their next budget cycle based on 90% of the previous year’s expenditures. Doing this allows for the unexpected to not sting as much and when someone has an idea that was not previously budgeted, it helps decision makers be more inclined to say “Yes!” to forward thinking leaders.
When I was working in the non-profit world, during the budget process, there were often people that would include a “faith amount” on the income side of things to make up for the excess expenditures that they were also projecting or hoping to spend. I ALWAYS pushed back on that. Not because I didn’t have faith or believe in the mission of the organization. It was actually quite the opposite. I believed that in order for the mission to be sustained and moved forward, it was even more important to trust that as needed funds came in, we would steward them well and dream about future possibilities within the bounds of what we were being given, not what we were hoping we would get without any precedence for having received that level of funding.