[EricVanWyk]

I'm taking "Introduction to Non Profit Organizations" this semester. Last week was focused on cash reserves. Also, my final report is a paper and a presentation on FIRSTs organizational structure and cash flow. As such, I've looked into this a little bit, though I will admit that most of my research is still ahead of me...

A healthy NPO (Non Profit Organization) absolutely needs a cash reserve much more than a for-profit does. As Tom and several others have already pointed out, a cash reserve protects against "rainy-day" and "disaster" events. It is also necessary to keep a reserve on hand even for non-emergencies, to keep the gears turning.

Situations vary between NPOs, but a vague rule of thumb is to keep a quarter of your annual throughput on hand, "minimum". After reading half a tree worth of horror stories of NPOs that tanked due to insufficient reserves, I'm glad FIRST has a bit in the bank.

My guess is that the rapid rise in the reserve is the result of a combination of bringing in experienced professionals and a wake up call to the potential danger they were in. I'm not sure if I agree with the rate at which they are correcting, but I do agree that it needed to be increased.

Unfortunately, a minimal "safe" reserve level will almost always look to be selfishly large to people outside of the NPO community. This can sometimes make it harder to find funding, as the backlash in this very thread clearly demonstrates. Many NPOs repurpose these assets by adding restrictions to them or creating endowments, partially in order to mitigate the negative PR they generate.

Lastly, before we lambaste FIRST for this, lets all take a moment and look at the reserves universities keep and the rates they charge for tuition. I won't say the two are apples and apples, but it is a similar concept.