This sample reserve policy is intended as a template nonprofit and association boards can adapt to their own needs, covering everything from purpose and targets to how each reserve is used and approved.
A reserve policy is a written document that states how much your organization holds in reserve, what those funds can be used for, and how the funds should be replenished. Your board and finance committee use it to guide decisions about your reserves and to keep those decisions consistent over time.
A reserve policy is separate from an investment policy statement: the reserve policy sets how much is held and why, while the investment policy statement governs how invested reserves are managed.
This sample reserve policy is intended to act as a detailed template you can adapt to your organization’s objectives and financial situation. The language should be modified to reflect your reserve strategy, whether you are updating an existing policy or creating a new one.
Additional Governance Policy Resources:
When creating your reserve policy, consider a structure that reflects how your organization holds and uses its funds. The example below segments reserves by purpose, with each pool set aside for a specific need. This represents one way to organize reserves, though the right segments depend on your organization’s needs.
The working capital that your organization uses for more immediate expenses such as payroll, vendor payments, and other day-to-day transactions.
Liquid funds held to support non-immediate operating needs within the current fiscal year, offering flexibility for managing modest operating surprises.
Funds set aside for anticipated initiatives outside the annual operating budget such as technology improvements, renovations, or program launches.
Emergency funds to provide long-term operating stability, protecting your organization against unexpected disruptions.
Reserves designed to support future opportunities that are not earmarked for a specific project or held to protect against a specific risk.
Funds carrying legal, contractual, or donor restrictions. These are often tracked separately from your other reserve pools.
This sample reserve policy includes the following sections with associated language for nonprofits and associations to adapt to their own objectives and reserve strategy. Sections include:
Raffa helps nonprofit and association boards think through their reserve strategy and develop a reserve policy that matches their objectives. If you would like help reviewing or building yours, click the button below to schedule a meeting with one of our advisers or email our team at info@raffaadvisers.com.
A nonprofit generally reviews its reserve strategy on a regular cycle, often annually, and updates it whenever something material changes. Triggers usually include a shift in the budget, revenue, or strategic plans, or turnover that brings in a committee unfamiliar with the current approach. The goal is a policy that continues to reflect the organization’s objectives and how the reserves are actually used.
Who can approve using reserve funds depends on the pool and what the reserve policy itself states. Staff can usually draw on operating cash within set limits, while board-designated reserves generally require finance committee review and board approval. A reserve policy should state these approval steps clearly, so it is understood who can authorize a withdrawal and when.
A reserve is generally replenished from operating surplus or unrestricted contributions over a period the board or finance committee sets, with the goal of returning it to its target balance. Many organizations rebuild their near-term pools first, then add to longer-term ones. Writing the replenishment approach into your reserve policy keeps a one-time draw from turning into a lasting shortfall.
A board-designated reserve is money the board itself has set aside for a purpose, and the board can redirect it later if needed. A restricted reserve is limited by an outside party, such as a donor, grant, contract, or law, and cannot be repurposed without meeting those terms. The difference is who controls the limit: the board for a designated reserve, and an outside party for a restricted reserve.
No. A reserve policy sets how much an organization holds in reserve, what each pool is for, and who can use it. An investment policy statement governs how any invested reserves are managed. Many boards adopt both.
Disclosures:
Raffa Investment Advisers is a registered investment adviser with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training.
All investments involve risk, including the possible loss of principal. Past performance is not indicative of future results. Any forward-looking statements are based on current expectations and are subject to uncertainties.
This page is for informational purposes only and should not be construed as personalized investment advice. The sample reserve and investment policies and associated guide are provided as a starting point rather than as legal documents or as legal advice, and your organization is responsible for reviewing and adapting any policy it adopts with its finance committee, board, and appropriate advisers. The considerations described here reflect Raffa’s perspective as an investment adviser serving nonprofits and associations, and other advisers may weigh them differently.
Portions of this page were drafted with the assistance of AI tools and reviewed by Raffa Investment Advisers staff for accuracy and compliance.
