The purpose of a reserve fund is to help ensure the long-term ability of organizations to meet their missions. A reserve Fund is set aside by an organization’s board of directors, and overseen by the executive committee/finance committee. These funds enable organizations to (1) create an internal line of credit to manage cash flow and maintain financial flexibility; (2) sustain operations through delays in payments of committed funding; (3) pay for one-time, nonrecurring expenses that will build capacity (e.g. such as staff development or research and development). A reserve fund is not intended to replace a permanent loss of funds or eliminate an ongoing budget gap.
Developing your Reserve Fund Policy: A Template and Guide for Nonprofits
Fiscal Management Associates