Building and maintaining a Board-designated Operating Reserve

Boards may use accumulated operating surpluses that are not invested in fixed assets or subject to donor restrictions or other board designations to create an operating reserve. The presence of an operating reserve increases an organization's ability to take mission-related risks and to absorb or respond to temporary changes in its environment or circumstances, for example, significant unbudgeted increases in operating expenses or losses in operating revenues.

Operating reserves create liquidity and financial flexibility for the organization. Organizations with a strong working capital position can focus beyond day-to-day cash flow needs and more effectively plan for the long-term health of the organization.