Use of Restricted Reserves
Organizations often come to me in fiscal difficulty with the need to spend some of their reserves in order to deal with budget deficits or shortfalls. In many cases, these organizations have both unrestricted reserves and restricted reserves – money that can only be spent under certain conditions. In most cases, the restrictions on the funds are designed for the organization to use the funds for a certain purpose that is a subset or portion of the organization’s larger purpose and goals.
In these cases, innovative organizations do their best to use their restricted funds first: this way, they have fulfilled the obligations on the money up front, within its intended purpose, leaving the organization with more of its unrestricted money for future use – either to be expended more generally if the crisis deepens, or to be used as seed funds for innovation, outreach, research and development. This gives greater flexibility and room to maneuver in the long term.
Non-innovative organizations tend to use their restricted funds last: thus ensuring that certain endowed programs will be maintained long into the future, even at the expense of new, creative or innovative programs and/or services, or, even more likely, at the expense of the organization’s greater purpose and even its health. This approach gives dramatically less flexibility and reduces potential stability in the long term, even though it looks (from some angles, at least) as the most stable approach.
Deficits can come from a variety of different factors, not the least of which is a long-term crisis of vision. Nevertheless, even in a fiscal crisis brought on by lack of vision, an organization can choose innovation over stagnation by using its restricted reserves proactively, thus creating space for the renewal of vision and development of new programs, products and services that fulfill the greater purpose of the organization.