READ THE FOLLOWING POST AND PROVIDE YOUR OPINION OF THE WRITER’S POST USING IN-TEXT CITATIONS TO SUPPORT YOUR RESPONSES. UTILIZE THE SAME REFERENCES PROVIDED BELOW.
To ensure that the organization remains financially strong through this period when no additional operating revenue is available. The writer would implement the operating reserve ratio to help indicate how long the organization can continue its operations without any revenue coming in to fund its operations. Though this ratio can be stated in a percentage, as manager, I would calculate the number of months to address the concerns of the organizations ability to meet its financial obligations and pay the expenses on time. (Paszkiewicz, 2019).
Assessing the organizations financial position utilizing the operating reserve ratio would reinforce the importance of the need for operating reserves. This is an unrestricted fund balance set aside to stabilize a nonprofit’s finances by providing a “rainy day savings account” for unexpected cash flow shortages, expense or losses that might be caused by delayed payments, unexpected building repairs, or economic conditions typically at a minimum of 25% or 3 months of the annual operating expense budget. Reserves should not be used to make up for income shortfalls, unless the organization has a plan to replace the income or reduce expenses in the near-term future. In short, reserves should be used to solve timing problems, not deficit problem (Raffa, n.d.). These reserves would provide stability and promote strategic decision making for the organization’s future financial stability. It would provide the flexibility necessary to pay for items that aren’t covered by restricted grants (Foley, 2016).
Foley, B., (2016). How to Develop Your Nonprofit Operating Reserves https://npengage.com/nonprofit-management/how-to-develop-your-nonprofit-operating-reserves/
Paszkiewicz, E. (2019). 3 Financial Ratios and Benchmarks Nonprofits Must Know. Gross, Mendelsohn