Our CFO advises our 501(c)(3) charity that we can’t afford to hire two part-time staff because it will cause a deficit of about $30,000 for the year. We need a new dedicated customer service coordinator and another to serve with me and take over my position as CEO when I step down in the next six months or so. Should we consider using reserve assets (we have nearly $400,000) to assist us? Our revenue last year was $488,000, with a net profit of $70,000. Virtually all of our income is from fees for service. We have been growing at nearly 15% annually for last five years. How should we handle this? —From the Website.
You are in an enviable position. Most financial commentators seem to encourage smaller charities to build reserves up to a six-month cushion that could sustain the organization without any income. A lot of smaller nonprofits live so close to the line that they have no chance of doing it. They would have to borrow if they wanted to hire two new people. You now have reserves of about 80% of your annual expenses. Even if the new hires didn’t generate a penny of new revenue, you could afford several years of $30,000 deficits and still be at a “safe” level of reserves.
You are also in an enviable position of being able to train your successor while you stay on the job. Your leaving can be a lot less traumatic than turning over the reins to an unknown and inexperienced successor. If your successor thinks it would be a good idea to create a fundraising program as part of the CEO job, it could wipe out the entire projected deficit with a single gala thank-you event recognizing your retirement.
Thank your CFO for seeking to protect the books of the organization. But in a people business, people are the biggest assets and investing in them can do wonders for the balance sheet.
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