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Planning for 2024: Don’t Forget About Cash Management

As we move closer to year-end, many nonprofit organizations are compiling and finalizing their budgets for 2024. One topic that we strongly recommend that our nonprofit clients consider as part of the budgetary process:

Cash Reserve and Investment Policies

A cash reserve policy defines the types, purposes, and amounts of reserves needed to allow an organization to operate while weathering financial challenges and ensuring stability. The amount of cash reserves required is different for each organization and can change based on strategic goals and financial seasons. The investment policy defines the funds available for investment to optimize return and minimize risk.

 

Many organizations strive to have cash reserves of at least three months

Cash in excess of your intended reserve could potentially be placed in a low-risk investment vehicle.  There are many investment options available to nonprofits including CDs, Treasury bills, money market accounts, and sweep accounts, just to name a few.  Current interest rates have risen significantly, and there are many options for rates over 5%. Conversely, an average checking account interest rate is only 0.07% according to the FDIC.

As an example, consider a nonprofit organization that has $100,000 of excess cash. If the funds were placed in a 12-month CD with an interest rate of 5.7%, it could generate an additional $5,700 for the organization! Comparatively, if you left the same amount of money in a standard checking account, it would only generate $70.  Your organization can likely do a lot more with an extra $5,7000 versus an extra $70.

 

Investment strategies are highly dependent on your organization’s unique needs, goals, and circumstances.

We recommend working with your banker to identify which investment strategy is the best fit for your organization.

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