Discover how to strengthen your nonprofit’s financial stability with a clear policy for managing funds across cash, reserves, and long-term assets.
Nonprofits often face the challenge of balancing immediate financial needs with long-term sustainability. A well-designed policy for managing funds across various accounts—typically categorized as cash, operating reserves, and long-term assets—can help ensure stability, liquidity, and future growth.
Some organizations may include additional buckets like designated funds or capital reserves, but most nonprofits thrive with a framework focused on immediate, short-term, and long-term assets. This article outlines how nonprofits can create such a policy, including how much to allocate to each account when to move funds between them, and the key benefits of implementing a formal policy.
A nonprofit's financial health depends on striking the right balance across key financial "buckets." These include cash for immediate needs, operating reserves for short-term stability, and long-term assets for growth. Some organizations may also have specialized buckets such as designated funds (set aside for specific projects) or capital reserves (for large-scale investments like facility improvements). Still, the principles of fund allocation remain consistent across most nonprofits.
A well-crafted policy should define when and how to move funds between the cash, operating reserves, and long-term asset buckets, ensuring that resources are used effectively in line with the organization’s goals.
The Finance Committee, in conjunction with the nonprofit management team, is typically responsible for reviewing fund balances and recommending necessary transfers. Significant fund transfers may require Board of Directors approval. Results of the review and any major fund movements should be reported to the Board, ensuring transparency and alignment with the organization’s goals.
Nonprofits can ensure that funds are moved efficiently by regularly monitoring these accounts—typically on a quarterly or semi-annual basis—and setting clear decision-making authority within the organization. In addition to immediate- and long-term considerations, organizations may also decide to review how designated or capital reserve funds fit into the broader strategy.
Implementing a formalized policy for managing fund transfers provides benefits that contribute to the financial health and stability of the organization:
By establishing a thoughtful fund movement policy, nonprofits can build a framework that ensures financial stability, aligns with investment goals, and supports long-term sustainability. While some organizations may have specialized funds like capital reserves or designated funds, the core principle of managing immediate, short-term, and long-term assets provides the foundation for smart financial management. Regular reviews and updates will ensure that the policy remains relevant and supports the organization’s evolving needs.
We're investment advisors for nonprofits. Questions about your investment program?
We'd be happy to be considered as your investment partner.
We're investment advisors for nonprofits. Questions about your investment program?
Have a quick investment question?
Submit a question and a nonprofit advisor will respond promptly.