Tuesday, September 1, 2009

How much money can a nonprofit have or carry over from year to year?

This is a very difficult question to answer because all nonprofits are different.

However, The National Charities Information Bureau suggests that charities should not have more than two years' expenses in reserve - a level few nonprofits will ever attain.

Can nonprofits make a profit? Yes, the IRS guidelines are very clear in the regulations which state that profits can't be simply distributed to board members (as corporate profits are to shareholders), but there is nowhere in the regulation that states that nonprofits can't have profits. In fact, any surpluses i.e. ("profits") are needed by all nonprofits to even out their cash flows.

To survive and thrive in these unpredictable times, we as individuals, as well as nonprofits, must be able to change. For most people, it is common sense to think of having a savings account, or to have money set aside for emergencies. Just as common is the notion of establishing some sort of retirement account. Likewise, most nonprofits need a reserve fund, as well as a separate endowment account that money cannot be drained from at will.

The obvious way to build a reserve fund is to operate with an annual surplus, generating net revenue that can then be added to reserves. A healthy reserve fund will give a nonprofit the flexibility to either develop new programs or quickly respond to sudden emergencies that constantly seem to appear in this arena.

Can nonprofits charge for their services? Yes, many nonprofits in fact exist solely on the fees charged for their services i.e. such as a nonprofit school charging tuition.

You also may want to contact your state nonprofit association and ask them if they have other guidelines that their member nonprofits follow.

If you have any questions feel free to contact me john@minges.com

Also, make sure to visit my website: www.nonprofitexpert.com

DISCLAIMER: This information is not intended to provide legal or accounting advice, or to address specific situations. Please consult with your legal or tax advisor to supplement and verify what you learn here.