What would happen if org didn’t have enough cash to pay employees, rent, taxes, or other obligations for the next few months?

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Anonymous
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Joined: 2012-08-20

What would happen if organization didn't have enough cash to pay employees, rent, taxes, or other obligations for the next few months?

Petra
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Joined: 2011-10-04
Reserve Funds for organization

This is one of the many situations where it’s better to look at your own organizational needs than at any outside standards.

For example, an organization that  gets 80 percent of its budget from an annual government grant if for some reasons  the grants don’t get processed until five months into the fiscal year. This organization would be in deep trouble if it didn’t have a reserve sufficient to cover its costs for at least six months. In that case, the organization would need sufficient reserves to enable them to conduct an orderly shut-down or to find a new source of funding. It would not be unreasonable therefore, for this organization to have a reserve large enough to carry it for much longer so it is able to cover any severance payments or other costs related to shutting down. This is a good reason for organizations to develop more sustainable sources of revenues.

 

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Anonymous
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The big question is “how much is reasonable to keep in reserve?

The big question is how much reserve fund is reasonable for organization to keep in reserve?

Petra
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Joined: 2011-10-04
Reserve Funds for organization

For most organizations it is important to have a reserve fund in case fundraising efforts fall short, earned income fails to materialize, or funding programs are cut back or eliminated. Several organizations have suggested guidelines or standards for the reserve funds,  this may range from as little as three months to as much as three years. ( OCASI Advance Financial Management Manual)


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