This post follows on from the previous post in the series on how and why to stress test your organisation.

Another strategy to mitigate the impact of the adverse events discussed in the previous posts is to try and build up reserves in the organisation.

There are many ways to do this but a simple method is to set up a second bank account and, on a regular basis, transfer funds into the account.  Over time as this account builds up it provides a form of security for the future operations of the organisation.

It is important to have very specific policies and guidelines in relation to how the funds can be used as without these, the reserves may be seen as a bit of slush fund and not used for the original purpose it was intended for.

It is important that when setting up the reserves account you identify a relevant target;  you don’t want to find it has a huge amount of money in there that is not being used for the benefit of the organisation.

Some examples of how to establish the target can include an amount that is equivalent to 6 months expenditure of the organisation.  It may also be linked to funding or grants you receive and as such another target could be based on 6 months of revenue that you received from the main recurrent grant.  The critical issue is that if you set up a reserves account that you have a target that it is linked to.

One other benefit of setting up and using the reserves account is that it can also provide the board with the time and resources to implement other initiatives and strategies. 

Whether this be, for example, seeking alternative sources of grants, developing fundraising strategies or establishing  membership recruitment initiatives, it allows the contingency plans that have been prepared as part of the stress testing to be implemented.

The intention behind this series of posts is to highlight why stress testing your organisation is a worthwhile activity.  Stress testing allows you to identify practical and realistic scenarios that could occur to your organisation and if they were to occur you have a plan or strategy that can be implemented to minimise the impact on your organisation.