We occasionally get questions from nonprofits and ministries about whether or not it is permissible to have investments. Usually, the question comes about because a board member looks at the organization’s financials and sees a certain threshold of money in the checking account and makes a recommendation that the organization “invest” some money.
While the idea of investing money is not a bad one, there are some considerations before moving all of the money into an account that is not liquid.
- Do you have access to at least three, perhaps six, months of operating costs? To know what you need to have on-hand, you need to understand how donations come into your organization, grant funds are received, etc.
- Do you have enough money in an accessible account available for contingencies? Just like in your home budget, you will want to have funds available for unexpected emergencies—perhaps a blizzard requires snow plowing, or a pipe breaks leaving you with a large plumbing bill.
- Do you have an investment policy in place?
Since many organizations do not have an investment policy, below are some points to include in yours.
- Cash above what is needed for current operations will be invested according to an investment plan.
- Investments need to be government-secured and guaranteed.
- Investments may be made at the discretion of (identify who???)
- Longer term investments (give a time period) must be approved by the board of directors
- Stocks and bonds under $___ must be sold as soon as possible.
- Stocks and bonds over ___ will be handled after consulting with key finance leaders and possibly a financial planner.
- Investments must be made in the name of the nonprofit.
Perhaps your organization is not quite ready for an investment policy, it is still a good idea to have a savings account of some sort where funds not needed for immediate use are collecting a small amount of interest. However, note if you will be placing grant funds in such an account, note in the grant agreement whether or not the interest received needs to be reported to the funder.
As you develop a policy be sure to review every word in the policy to ensure they reflect the needs and best interests of the organization. You may also want to make it a habit to have all policies reviewed by an attorney prior to having the board approve them.
Then, be sure you maintain a binder with all of the latest versions of policies and an electronic copy that is store “in the cloud.”
Oh, and the answer to the question that we started with…yes, nonprofits and ministries can and probably should have investments.
Need help with policies? Contact us today.