ABOUT THE NONPROFIT OPERATING RESERVES INITIATIVE

HISTORY
In the spring of 2008, a Nonprofit Operating Reserves Initiative Workgroup comprising experienced individuals representing multiple facets of the nonprofit sector was convened to address the need for maintaining operating reserves at levels adequate for achieving financial stability. Our Workgroup determined that these groups were financially fragile because they tended to spend every penny they brought in on programs and had no financial resiliency to get them through the extended downturn.  To address this issue of under-capitalized small nonprofits, our workgroup set itself two objectives: to define “Operating Reserves” and establish guidelines to help nonprofit leaders determine benchmarks for financial stability that are specific to their organizations.

MISSION
Our mission was and is to define, promote, and facilitate the practice of building and maintaining operating reserves throughout the nonprofit sector as a key strategy toward ensuring the long-term sustainability of the organizations and programs that save and enhance our lives.

VISION
When we have accomplished our mission . . .
Our vision is that all nonprofits will have a well-managed operating reserve in place in an amount appropriate to each organization’s specific needs, and that building and maintaining operating reserves will become universally understood as sound policy and endorsed by nonprofit organizations’ staff and board leaders, the donors and funders who support them, and the accounting professionals who serve them.

ACCOMPLISHMENTS
By September, 2008, the Workgroup had reached consensus on definitions for operating reserves and the "Operating Reserves Ratio," specifying that "there is no one size fits all ratio or benchmark" but rather that "it depends," recommending that nonprofit boards establish a Reserve Policy that includes a suggested minimum Operating Reserve Ratio appropriate for their organization. A board approved Reserve Policy could also include board-designated funds that are set aside for non-operating strategic purposes and/ or quasi endowment.

The Webcast: Representatives of the Workgroup made a presentation at the National Grants Partnership Webcast on November 17, 2008 on the "Nonprofit Operating Reserves Initiative."'

Publications (available in the NORI Document Library at https://www.nonprofitaccountingbasics.org/nonprofit-reserves/):

The Whitepaper: By December 2008, the Nonprofit Operating Reserves Initiative Workgroup drafted and published the whitepaper: "Maintaining Nonprofit Operating Reserves: An Organizational
Imperative for Nonprofit Financial Stability."

The Toolkit, 1st Edition: After the whitepaper was released, the group decided that the next step should be to provide a practical way for groups to turn theory into practice. A subset of the workgroup began toassemble the "Operating Reserve Policy Toolkit for Nonprofit Organizations, First Edition" which was released in September 2010, with minor updates through 2017.

The Toolkit, 2nd Edition: In late 2022, a small task force updated the Toolkit to reflect changes to accounting standards and terminology and to take a simpler approach to policy development that would be more accessible to small and midsize groups. The “Board-designated Operating Reserve Policy Toolkit for Small & Midsize Nonprofit Organizations,” released in 2023, focuses on fully-funded, board-designated operating reserves vs. the broader approach of the first edition.

Permanent Home: The NORI documents now have a permanent home as a section of the Nonprofit Accounting Basics website https://www.nonprofitaccountingbasics.org/, a free online resource for small and midsize organizations provided by the Greater Washington Society of CPAs Educational Foundation as a service to the nonprofit community. We are grateful for their generosity in hosting us!  Information about NORI and access to its Document Library can be found at:  https://www.nonprofitaccountingbasics.org/nonprofit-reserves

GETTING THE WORD OUT
Since 2009 and ongoing, members of the workgroup and other interested practitioners have written numerous articles and made many live and webinar presentations promoting the idea of creating and maintaining operating reserves. Join us in getting the word out by sharing this website and policy development resource freely.

© NORI 2023