Why Your Nonprofit Needs a Savings Account

At Beckie Irvin Consulting and Research, our team takes pride in helping small to mid-sized nonprofits build more sustainable operations. One of the first steps we coach clients on doing is opening a savings account for their respective organizations. 

Whether you’re just starting out or looking to grow, one of the best steps you can take towards financial health is establishing a savings account. 

Building savings for your nonprofit can have an incredible impact on an organization’s success and sustainability. It also instills confidence in nonprofit leaders as their organizations navigate the natural ebb and flow of cash flow, capacity building, and fundraising.

A well-maintained savings account can be your organization’s safety net when you have your first financial crisis (which is just a matter of when, not if). Then, years later it can springboard your organization to new opportunities. Let’s explore how this simple financial tool can help your nonprofit thrive.

Why does my nonprofit need a savings account?

Having a financial safety net helps ensure your nonprofit will be able to continue its operations and programming regardless of unexpected expenses, emergencies, revenue shortfall or economic uncertainty.

You need a savings account to navigate fluctuations in cash flow:

Your nonprofit will experience fluctuations in cash flow. This is simply due to the nature of relying on donations, grants, and fundraising events to fund daily operations and programs. 

For example, let’s say you have enough money to cover about two month’s worth of expenses in your checking account. At the same time, you made it past the first round of review for a large two-year capacity building grant. The grant officers are feeling positively about your application being approved for funding, but they’d like to work together for a few months tweaking the proposal. For this reason, it’s unlikely that your organization will receive funding for another four months. 

If there are no other sources of income coming between now and then, you will run out of money before the grant is distributed. This leaves you with a 2-month gap in cash flow. Two months is a perfect example of why your nonprofit should have a savings account. In an instance such as this, your nonprofit can opt to pull from your savings in order to cover the cost of wages and operating expenses while you wait for the grant disbursement. 

With a good savings account, you will not worry about the organization's ability or inability to continue to cover wages and operations costs when revenue slows down. As an added bonus, having a savings account will give all members of the nonprofit leadership team confidence and peace of mind while you assess your fundraising strategies.

A nonprofit savings account will help you build financial credibility and trust:

Donors and stakeholders are more likely to trust and support a nonprofit that demonstrates strong financial management and forethought. A well-maintained savings account reflects responsible stewardship of their donated funds and a commitment to the organization’s long-term sustainability.

Earn more income with interest earned on nonprofit savings.

Savings accounts can earn interest, providing a way for the nonprofit to generate additional income from its funds. Even a small amount of interest can contribute to the overall financial health of the organization.

Strengthen your grant proposals with an established history of building savings.

Some grant-making organizations require nonprofits to describe their financial stability as a part of their grant proposals. Naming the organization has a healthy savings account can be a positive indicator of the nonprofit's financial health and management capabilities.

Investment in organizational growth and future programming.

Nonprofits may need to invest in new programs, infrastructure, or staff development to expand their impact. An established savings can provide the necessary funds for these growth initiatives without disrupting regular operations.

In Conclusion

Establishing a savings account is a fundamental step towards ensuring the financial health and sustainability of your nonprofit. Ultimately, a robust savings account empowers your nonprofit to seize new opportunities, invest in organizational growth, and continue making a meaningful impact in the communities you serve. 

We know nonprofit leaders have a lot on their plates! Taking this one proactive step can provide you, your board, and your stakeholders with confidence that your organization is preparing for the challenges that come with the nonprofit territory. In our upcoming blog posts, we will explore questions such as "How much should my nonprofit save?" and "How do I choose a savings account?" — Check out our blogs page next week as we dig into the next steps for building a nonprofit savings!