August 8, 2023

Whose Money is it?

Andrew Estep

Dear Members, 

As we slowly recover from the pandemic, a few bright spots shine. One that is shining through is that many PTAs have much larger bank balances than they had in the past. For some, that seems to be a luxury and not a problem. It can, however, be a problem.  

Charitable nonprofit and membership organizations exist to serve their communities and members. They should not be wealth generators. That’s what foundations do. Nonprofit organizations with “a lot” of money should be able to justify their bank balances to their stakeholders and the IRS if an audit comes your way.  

How much is too much? This is where it gets tricky. The IRS does not give clear guidance because organizations can be complicated. Each organization must figure out its own prudent reserve limits. How much money should it keep in case of disaster, large or small? You can find the answer by taking a long look at your finances. 

What are your income sources? Where do you get your money on an annual basis? What would happen if an income source were interrupted? What impact would it have on your purpose and mission? Could you readily replace that income source? What about expenses? What are your financial commitments and ongoing expenses? How much money do you need in the bank to meet these commitments? 

All that said, my rule for a nonprofit membership organization is to keep a prudent reserve of 6-12 months in the bank. You may want to hold a membership meeting to discuss and answer the questions above. Agree on how much money your PTA should keep in reserve. (It can be helpful to express the number in terms of months of expense.) Then, add a line to your standing rules to guide future leaders.  

If your bank balance is greater than your prudent reserves, spend it down. Remember that those funds belong to the membership. You could spend it on family engagement or community building. You could invest in your PTA by spending it on outreach efforts. You could talk to other local PTAs to get ideas. Make the most of it. 

If your bank account is short and you don’t have enough reserves, then put a plan in place to build them up. The unexpected happens all the time. It is best to be prepared. 

Enjoy the rest of the summer! 


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