Nonprofit Operating Reserve Calculator

How it is calculated

The tool turns a cash reserve into months of spending: months = reserve ÷ (annual expenses ÷ 12) and ratio = reserve ÷ annual expenses × 100. Reserve is the unrestricted cash or liquid funds you could actually spend, and annual expenses is the total yearly operating budget, both in the same currency. The monthly figure is simply a twelfth of the annual one, so seasonal swings are averaged out. The result appears in months (mo) with two decimals, and the ratio as a percentage. Zero reserve is accepted and shows 0.00 mo; a negative reserve, or annual expenses of zero or less, gives no result. A reserve larger than a year of expenses simply gives a ratio above 100%. The tool does not say what target is right for your organisation.

Common mistakes

• Counting restricted grants or donor-designated funds in the reserve. Only money you can freely use for operating costs belongs there.
• Entering monthly expenses in the annual field. The result would then show twelve times too many months.
• Putting capital purchases or depreciation into annual expenses when you want cash coverage, or leaving out cash costs such as payroll taxes.
• Confusing the two outputs: 3.00 mo is a count of months, while 25.00% is the same reserve as a share of one year of spending.
• Counting land, buildings or other assets that cannot quickly be turned into cash as part of the reserve.