By Susan Chenoweth

For many charities and NFP organisations, managing cash reserves can be a real puzzle. How do you invest wisely so that services can be delivered sustainably in the future, while also making sure there’s enough cash available for current needs?

Often seen as stewards for “Public Money”, many NFP and charity boards feel a heavy weight on their shoulders. But in our experience, it is a weight that can be lifted.

One organisation we worked with at Elston was very successful in delivering services and managing cash flow, but there was a growing sense of unease and uncertainty around future government funding. We sat down with the CEO and Board and helped to analyse their future funding challenges. We also looked at the opportunities.

By analysing their current asset pool, market advantages and reserves, we were able to guide them in setting a strategy around various goals. These included social enterprise opportunities they may want to invest in and the liquidity they needed to meet future capital requirements. Through our process they were able to identify passive investments that could supplement any external funding to deliver passive and stable income streams.

The CEO and the board felt they had stronger foundations for income growth. They were also more confident in their ability as financial stewards for an organisation that had been in the community for many, many years.

So, as you can see, if you have an effective strategy, it is possible to solve the cash reserve puzzle. A good place to start is with these five questions. Ask yourself:

  1. What is our future income stream and likely expenses?
  2. Do we have sufficient liquidity to draw on should our income drop or expenses rise?
  3. What is the purpose of our cash reserves and what are the timeframes? For example, funding research over the next 10, 20 or 50 years.
  4. Could we look at complementary investment such as commercial enterprise, property or shares?
  5. Are we making a conscious decision to keep our reserves in cash or other assets?

Once you have determined the answers, you’ll need to document them and specify when and how these decisions should be reviewed. This is how an investment strategy starts to take shape.

An investment strategy it is not just for “cash rich” organisations. The ACNC and other corporate regulators require charities and other income tax exempt organisations to have a clear “Strategy for Cash Reserves” or a documented “Investment Strategy”. It is critical to meet your reporting obligations and demonstrate good governance.

By developing a strategy, you can help connect and align your reserves and investments with your organisation’s mission, purpose and services. Often engaging an independent expert to assist in developing this key documentation can assist in more timely delivery with a structured and proven process.

At Elston we provide a specialist NFP service. We’ve worked collaboratively with a number of organisations and helped them navigate their own challenges.

If you’d like to know more about our process or see more examples of our work with NFP boards, we’re here to help. You can reach out to our Head of NFP and Philanthropic Services Susan Chenoweth, by calling 1300 ELSTON or emailing susan.chenoweth@elston.com.au