One thing we have learned from the COVID-19 pandemic is that more is more: Individuals with vacation homes and plenty of toilet paper usually fare better than those without, but this year the contrasts were starker than they have ever been in my lifetime. In the personal finance world, a 3-6 month emergency fund no longer feels like the gold standard. In business too, while both lockdowns and difficulty finding workable models have hit small and new businesses particularly hard, it is astonishing that so many companies with gargantuan profits were so close to the margins that they went bankrupt in the earliest weeks of the pandemic.

In the context of nonprofits, we can learn many lessons from COVID-19, including being bullish about preparation. Until now, there has been limited impetus to change the practice of raising all or most of the budget every year. In the nonprofit sector especially, there tends to be a bias against the immensely rational business decision to build reserve funds. Some erroneously assume based on the word “nonprofit” that nonprofits should be operating at a loss, or that it is unlawful for a nonprofit to carry over funds from year to year. This is simply incorrect; nonprofits should operate like well-run businesses, but instead of giving profit to the shareholders or employees, the funds must be reinvested into the nonprofit to further its mission.

Surpluses can be used for unexpectedly low fundraising seasons, occasional cashflow, or disasters, like pandemics. A surplus should never be an excuse to skimp on innovation or taking calculated risks, and the hope is that for the next pandemic, a well-run nonprofit would be able to use its surplus to pivot quickly and adapt to the exigencies of the situation.

Read the full article about building nonprofit reserve funds by Lindsey Bodner at eJewish Philanthropy.