When do you use your rainy day fund?

Most well-managed associations  have an “operating reserve,” which is “rainy day” money set aside for unexpected cash flow emergencies. A common target is three to six months of operating expenses. The idea is that if revenue completely stopped coming into the association, you would still have at least three to six months of cash to operate on.

What is less common is associations having clear policies for when these reserves can be used. My wiser clients will use these funds when an important but unbudgeted item arises (e.g., the need for a new association management system). But too often, associations will sit on the reserve fund as if it is completely untouchable. Even during the financial crisis of 2008 (which affected associations in 2009), many associations chose to lay off staff and cut programs rather than dip into their reserves.

If an economic crisis is not reason enough to dip into reserves, what is?!?

So ask yourself: When do we use our rainy day fund? What activities will justify its uses? Is it only for use in case of calamity, or can they be used for “smaller” but important unbudgeted programs? Each association has to decide for itself, but the policies should be clear and the money should be used when it is merited.

About Wes Trochlil

For over 30 years, Wes has worked in and with dozens of associations and membership organizations throughout the US, ranging in size from zero staff (all-volunteer) to over 700. In that time Wes has provided a range of consulting services, from general consulting on data management issues to full-scale, association-wide selection and implementation of association management systems.

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