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Nonprofits struggle to balance public good and good business practices.  I wanted to congratulate Cooper Union for the Advancement of Science and Art in Manhattan New York for a strict adherence to conservative investing.  This college is a no tuition school and is nearing completion on a new $150 million academic building.  Their conservative approach has allowed them to keep their endowment at or slightly above last year.

Nonprofits have to remember that their not investing on behalf of risk taking investors, but for the financial long term health of the organization.  Consistent low risk returns build an organization.  The higher the risk a nonprofit takes with its money the more likely the intended outcome can fail.  When nonprofits are looking for that higher return the difference between low risk and high risk should be allocated to ongoing and one time expenses.  The higher the risk the more the expense should be assigned to one time expenses.  A nonprofits management and Board need to allocate their budgets accordingly to prevent in the future the impact of decreasing endowments.

The other good practice is to budget with a margin.  When building a budget with program the staff takes two steps.  First, allocate costs based on expected revenues. Second, reduce the budget by three percent, have a plan on how to produce the same amount of outcome for the reduced dollars.  This will create a practice efficient at budgeting and building a reserve.

This entry was posted on Tuesday, June 30th, 2009 at 12:01 am and is filed under Investing, Budgeting. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.