How clear is your crystal ball? When we set forth plans of any stripe – strategic, budget, project, etc. – we are saying that this is how we plan for the organization to operate within a given timeframe. In other words, we’re predicting the future.
For the vast majority of us, our past teaches us that we cannot predict the future. We’ll get close, but things happen outside of our control that throw curveballs, plant bumps in the road, and knock us off-kilter.
The lesson is clear: we need to plan for things NOT to go as planned. We need to have back-up. So, how many of your organizations:
- Build a surplus into your annual budget (e.g., 3-5%)?
- Maintain an adequate reserve in the bank (e.g., 3-6 months of expenses)?
- Have succession plans (quick exits and planned exits) for your key positions (both staff and volunteer)?
Building and maintaining an operational reserve means that your organization faces the fact that “stuff happens.” It demonstrates your ability to stay disciplined over the long-term, and it is one of the hallmarks of a sustainable organization. Further, it provides the financial capacity to resist the urge to cling to the familiar and adapt to changing times. It gives you choices!
Operational reserve can also apply to staff time and energy. According to BoardSource’s most recent Governance Index, 22% of nonprofits cut staff and 23% froze or reduced salaries in 2012. While these numbers are lower than the 2010 report, we often find that these cuts are NOT accompanied by commensurate changes in programs and services. In other words, staff must to do more with less.
This trend finds support in two other recent studies. Nonprofit Marketing Guide’s 2014 Trends survey reports that 57% of communicators say they are asked to do more than is possible within the given time. Further, CompassPoint’s 2013 “Underdeveloped” survey reports that the average length of vacancy after a development director leaves is six months. For organizations with operating budgets of $1 million or less, the average jumps to 12 months.
Cultivating a long-term approach to financial reserves AND staff time/energy reserves is critical to success. It develops a strong organizational core that withstands annual ups and downs and develops overall quality and quantity.
This is an area that we can assist one another. What have you done to successfully build your reserves? Leave a comment or send me an email (firstname.lastname@example.org).
P.S. I posted a recent article on our LinkedIn group that has attracted some conversation. Check it out.