Guest blogs

Two stories about financial reserves

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by John Cammack

Over recent months, whether international development organisations have had enough ‘reserves’ has been a key factor of whether they have been able to continue. Even those that have had reserves, have now largely used these up in order to survive. For many, things are still on the edge but, as soon as possible, we need to repair the damage done to reserves and try, if we can, to build them up. 

But what can we do? IMA’s short course Financial Sustainability and Resilience looks at how we can manage and replenish reserves. Here’s a short preview from the course about what reserves are…

Two stories

A personal story

In my first year of work, I received a salary of 10,500. My expenses for rent, travel to work, food, and entertainment cost me 9,750. I put 750 into my savings account. 

The second year I again received 10,500 as salary, but in addition to my expenses of 9,750 I had to pay health costs of a further 1,000 – a total of 10,750. I took the extra 250 that I needed from my savings. It left 500 in my savings account.

An organisation’s story 

In the first year we started, we had 10,500 from donations. Our project expenses, travel, newsletter production, and meetings came to 9,750. We put 750 into our savings account.

The second year we again received 10,500 and paid our expenses of 9,750; but this year we also had a new health project costing 1,000 more – a total of 10,750. We took the extra 250 from our savings account. We were still able to keep 500 in our savings account. We started to call the money in our savings account our ‘reserves’. We do not need it yet, but we may do in future years. 

Extract from: John Cammack (2014), Building Financial Management Capacity for NGO’s and Community Organizations, Practical Action Publishing

John Cammack’s book presents practical ways to build financial management capacity in an international development context, although much of it applies to any non-profit organization. It describes good practice in the specific tasks of financial management, such as planning and budgeting and financial controls, and gives examples of how groups and organizations build their own capacity. It explains other financial management aspects such as building reserves that can be built into an organization’s structure to make it sustainable.

This book should be read by programme staff and managers of non-government organizations, larger community-based organizations (CBOs), and charities, as well as by professionals working in large NGOs and donors, working with their partner NGOs and CBOs. The content can also be used in university and college courses for international development workers, as well as in training courses.

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