Executive Service Corps Strengthening the nonprofit community

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1 Nonprofit Financial Resources How much Cash, Working Capital, and Reserves Should You Have? By Michael Daily, Senior Consultant, Executive Service Corps In an earlier article, I suggested that there are no limits on how big a reserve or endowment fund might be as long as the amount is credible relative to the mission of the nonprofit. A more relevant question for most of us is what is the minimum amount of cash and reserve funds we should have set aside? This discussion is clouded since most of what is written on nonprofit financial issues does not make a clear distinction between cash, working capital, operating reserves, and unrestricted fund balances. What We Have Learned From Our Clients For many years the large public accounting firms suggested that nonprofits have 3 to 6 months of budgeted expenses as reserves depending on the situation of an individual nonprofit. Certainly the simplicity of this has appeal. For smaller nonprofits with stable cash flows, this approach can work. It also has limitations. We were working with a large Head Start provider that was responsible for maintenance of their facility, an aging former public school. Their accounting firm deemed 3 months expenses adequate since the agency had a reliable revenue stream from the state. They struggled to keep 3 months of budgeted expenses and continually faced cash flow problems. The state funds, while predictable in amount, were routinely 3 months late. In addition, a roof repair or replacement of kitchen equipment, which happened with some regularity, could easily be more than a month s budgeted operating expenses. Our recommendation was for them to build a minimum of 6 months operating expenses plus an additional board restricted fund for facilities maintenance emergencies. We did a more sophisticated analysis for a second client whose primary source of revenue was an annual walk. They understood the relationship between the weather and the fundraising income from this event. They wanted to determine the amount of reserves that would make it very probable they could fully fund their work given the uncertainties of weather. We were able to work with them to build a statistical model of the weather and determine the appropriate size reserve. For a third client, a monthly cash flow analysis revealed a seasonal cash flow dip that added to the need for additional cash. This is typical of summer camps, which can be flush with cash from advance deposits in the spring, but can run short of cash by the last payroll of the season. Often arts organizations, such as theaters have complex cash flows. They may benefit from advance ticket sales, or may face a cash crunch when required to make advance 1

2 payments to book an act. We recommended that they build an additional reserve because of the complexity of the cash flow and the uncertainty around ticket sales. It is apparent that the 3 to 6 months of budgeted expenses is not one size fits all, yet there is not a lot of useful guidance on alternative policies. There are several reasons for the lack of guidance, starting with the dearth of funding for studying nonprofit issues. The wide variety of business models across the sector makes generalizations difficult. The nonprofit watchdogs have clouded the issues with their own definitions of reserves. Finally, there is an attempt to apply financial metrics from businesses to nonprofits; that does not work more often than not. That being said, we will attempt to outline a framework for successful financial practices that will lead to sustainability. Defining Financial Resources First it is important to realize that there are three distinct financial needs: 1. Working Capital or Cash to provide the liquidity to cover immediate cash flow needs from normal operations and seasonal variations 2. Operating Reserves which have two functions: a. Covering unexpected cash flow shortages b. Capitalizing on new opportunities 3. Restricted and Quasi-Endowment Funds that provide: a. Long term stability b. Financial support from investment earnings Each of the three needs become paramount at different stages of a nonprofit s life cycle. The most immediate need is for Working Capital or Cash. For a start-up adequate Working Capital becomes apparent with hiring of the first employee, if not before. Operating Reserves become important after a nonprofit has adequate funds for normal operations and seasonal variations. This is typically in a 5 to 10 year time frame on revenues of $250,000 to $1,000,000. Reserves can cover unplanned expenses such as emergency facilities repairs, an unexpected loss of funding, or an investment in growth opportunities. Finally nonprofits that have a mission with a perpetual time frame are well advised to accumulate funds from annual surpluses and capital campaigns to provide a permanent source of funding. This is illustrated in Exhibit 1 below. 2

3 EXHIBIT 1 - NONPROFIT LIFE CYCLE & FINANCIAL PRIORITIES Start-Up Build Working Capital/Cash Growth Build Working Capital/Cash & Reserves Maturity Build Endowment Maturity Build Endowment REVENUE & CLEINTS Decline Liquidate Assets YEARS Working Capital and Cash A lot has been written about Working Capital in corporate finance texts. Unfortunately much of the analysis is not relevant for nonprofits. To simplify things we will focus on Unrestricted Cash which, after all, is the most important component of Working Capital. We recommend that our clients create an annual Cash Flow, as shown in Exhibit 2. By setting the initial cash to 0, you can get an estimate of amount of cash needed to fund the organization for the next year. The difference between the maximum and the minimum cash balance is the Annual Cash Need. We prefer to run this under a number of scenarios, being mindful of the relationships between Expenses and Revenues. In the example in Exhibit 2, the maximum negative Cash balance is 55,346. If we started the year with $55,346 in Cash, we would expect to squeak by with no cash at the end of August and experience a modest recovery by year end. This is the Annual Cash Need. Obviously we would like a buffer since it is not desirable to run the cash to zero, and we need to cover the inevitable lack of precision in making forecasts. 3

4 In computing a buffer, it is useful to compare the Annual Cash Need with the average monthly expenses. The annual operating expenses were $541,600 so the average monthly expenses were $45,133. The Annual Cash Need of $55,346, or more than one month suggests modest cash volatility. A buffer can be computed in one of three ways: 1. Changing the assumptions and running worst case cash flow scenarios in order to find a comfortable Annual Cash Need. This is preferred. 2. Adding a buffer of one month to the Annual Cash Need, or in this case $45,133. If the year goes exactly as planned the minimum cash would be $45,133 in August. This is suggested for a low volatility cash flow. 3. Adding a buffer of 50% to the Annual Cash Need. In this case the buffer would be $55,346 x 50% or $27,673. Again the minimum cash flow at the bottom of the cycle would be $27,673. This would be used with a high volatility cash flow where the variation is cash flow was more than 2 month s budgeted expenses. 4

5 Exhibit 2 Cash Flow Jan Feb March April May June July Aug Sept Oct Nov Dec Total Cash In Program Services 5,000 35,000 35,000 35,000 35,000 25,000 20,000 20,000 45,000 40,000 35,000 35,000 95,000 Fundraising 2,000 2,000 2,000 5,000 15,000 10,000 2,000 2,000 25,000 2,000 15,000 32,000 14,000 Other 1,000 1,000 1,000 2,000 5,000 Total In 7,000 37,000 38,000 40,000 50,000 36,000 22,000 22,000 71,000 42,000 50,000 69,000 14,000 Cash Out Salaries 2,750 22,750 23,000 23,000 23,250 20,500 20,500 20,500 25,500 23,500 24,000 24, ,250 PR Taxes 2,207 2,207 2,231 2,231 2,255 1,989 1,989 1,989 2,474 2,280 2,328 2,328 26,505 Employee Benefits 6,370 6,370 6,440 6,440 6,510 5,740 5,740 5,740 7,140 6,580 6,720 6,720 76,510 Professional Services 2,000 4,500 2,000 1,000 1,000 10,500 Contracted Services ,000 Program Supplies 4,200 4,200 4,200 4,200 4,200 3,500 3,500 3,500 4,800 4,800 4,300 4,300 49,700 Vehicle Expense 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 2,500 1,500 19,000 Rent 2,500 2,500 2,500 2,500 2,500 2,500 2,700 2,700 2,700 2,700 2,700 2,700 31,200 Utilities 1,000 1,000 1, ,000 11,000 Insurance 2,400 5,500 7,900 Total Out 43,277 41,277 41,621 48,271 43,715 37,429 43,129 38,629 45,714 42,960 45,248 43, ,565 Net (6,277) (4,277) (3,621) (8,271) 6,285 (1,429) (21,129) (16,629) 25,287 (960) 4,752 25,702 (565) Beginning Balance 0 (6,277) (10,554) (14,175) (22,446) (16,161) (17,589) (38,718) (55,346) (30,060) (31,019) (26,267) Ending Balance (6,277) (10,554) (14,175) (22,446) (16,161) (17,589) (38,718) (55,346) (30,060) (31,019) (26,267) (565) (565) 5

6 An alternate method for nonprofits with a stable history is to plot several years of cash and use the difference between the peak and the valley as an estimate of the Annual Cash Need. This illustration shows a plot of the cash balance for one of our clients over 5 years. Exhibit 3 Annual Cash Cycles The maximum variation in cash or Annual Cash Need was in Year 1 where it went to from ($12,000) to $77,000 or a variation of almost $90,000. During this time the monthly expenses were approximately $145,000. We have 5 years of data that is relatively consistent. Using the two methods of computing a buffer we have the following: Maximum Annual Variation $90,000 1 Month Expenses $145,000 Total Cash Need $235,000 Or Maximum Annual Variation $90,000 50% of Annual Variation $45,000 Total Cash Need $135,000 In this case we would recommend $235,000, as the more conservative amount. The second method is used only if it produces a larger suggested reserve than the first 6

7 method. Using this analysis, at the low point in the year, which was some point between February and June, the cash balance would be expected to be at or above $235,000. We have had turnaround clients who went through repeated struggles where they could not pay their bills within terms. Using a projected annual Cash Flow, assuming bills are paid within terms, is usually the best alternative and even more so here as the business model may have changed. It is also possible to do an analysis of history, by assuming that all bills were paid as received. To do that, simply subtract the month end payables, and any short term borrowing, from the month end cash balance. This will give an estimate of the maximum variation in the cash or cash need. It may also be necessary to add an amount to bring the payables current and pay off the line plus the buffer. With an estimate of the Annual Cash Need and a buffer, we are in a position to look at the next step, the Operating Reserves. Operating Reserves The most definitive work on Operating Reserves was done by a study group of nonprofits, accountants, and watchdogs called the Nonprofit Operating Reserves Initiative Workgroup. Their Operating Reserve Policy Toolkit for Nonprofit Organizations was published September 15, The Workgroup defined Operating Reserves as Unrestricted Fund Balance that is not invested in Fixed Assets, or otherwise encumbered. It is funds available for designation by the board. This is measured in months of Operating Reserves, where one month of Operating Reserves is the equivalent of the Annual Operating Expenses / 12 months. They do not specifically address Annual Cash Need, but suggesting that the desired Operating Reserves are computed at the low point in the annual cash cycle. This has the effect of addressing Annual Cash Need, but not including a buffer. That can be easily brought into the calculation by computing a buffer, as in the last section, and designating it as one component of the Operating Reserve. They use two techniques for calculating the additional reserves based on the facts particular to the nonprofit. 7

8 In the first approach they make a long list of Revenue Risk Factors as follows: Stability of donated revenue from primary sources Predictability of pledge collections Reliability of government grants and contracts Level of dependence on one or two major donors Foundation policies on overhead and annual support Economic health of the community Timing of funding commitments to agencies Likelihood of natural disasters such as floods, hurricanes, or earthquakes. (Especially if the organization s mission involves disaster relief) Publicity that could adversely affect current or future revenues Certainly regulatory changes And a long list of Spending Risk factors: The organization s importance in community crisis situations (for example if the organization s mission involves disaster relief) The extent to which economic downturns or other types of events may affect demand for services, either up or down The extend of funding commitments made for longer than a year Amount of unsecured debt carried by the organization Leases for longer than one year Level of dependency of programs on stable individual funding streams Ability to downsize operations quickly and still provide services to the community While this is a long list, I would add these more specific risks that have impacted our clients: Risk of elimination of program funding due to a cut in state or federal budgets Change in funding priorities by foundations or the United Way Health issues of senior managers Leadership transition Risk of changes to the charitable tax deduction 8

9 Increase in postage costs Failure of an event to reach its fundraising goal Cost overruns on performances or lack of attendance Limits on insurance coverage/business interruption insurance Of these, management transitions, when combined with other risks can be the most threatening. They suggest the Decision Matrix in Exhibit 4 as a way of determining how many months of Operating Reserves one would need. To use this matrix, a nonprofit would make an assessment of the risks from the above lists and then make a judgment as to where it fell on the matrix. A nonprofit with several revenue volatility factors, but only two spending risks might place itself in the 3 to 6 month category. This analysis, while subjective, is useful for smaller nonprofits and for those who have never addressed the concept of developing a reserve. For larger nonprofits, and those that own real estate, we suggest a more nuanced analysis. Purchasing real estate (or entering into a long term lease with responsibility for maintenance) deserves particular notice; it creates a dramatic increase is risk because: 1. A large portion of the balance sheet is tied up in real estate that is not liquid, and cannot be accessed easily, if at all, to meet current obligations 2. Maintenance costs are perpetual, with unpredictable timing; and they can be large relative to annual budgets 3. Cost reduction by subletting may be difficult, especially if the real estate is special purpose, or the need to sublet occurs during an economic downturn 4. New skills required to manage the facility may result in an increase in overhead Real estate can give rise to two types of Operating Reserves, one for large maintenance items such as a boiler or roof replacement, and another for the eventual replacement or major rehabilitation of entire buildings. Forward looking nonprofits can add an Opportunity Fund of seed money to capitalize on unanticipated opportunities that are eventually expected to become self supporting. 9

10 Exhibit 4 - Estimating Operating Reserves Operating Reserve Balance Decision Matrix High Risk for Spending Volatility 3 to 6 Months 6 Months Plus 3 Months 3 to 6 Months Low High Risk for Revenue Volatility We suggest an analysis such as the one in Exhibit 5. In this case the client identified four risks and one opportunity as reasonably possible within 5 years. They had an existing reserve of just over 3 months of Undesignated Reserve Funds. They decided to add to it to cover the specific risks. For each risk, they identified the effect of revenue and expenses. If the risk was more than the budgeted annual surplus, they added it to the reserve goal. We find it useful to reflect over the last 10 years and to try to anticipate the next 5 to 10 years when thinking about risks and opportunities. Typically the board would segregate the reserves as board designated Unrestricted Funds, which are referred to as Quasi-Endowment funds. We have drawn heavily on The Operating Reserve Policy Toolkit for Nonprofits in developing this section. It is a useful reference with examples of Operating Reserve Policies, guidance on financial presentation of reserves, and investment considerations. 10

11 Exhibit 5 Events>>> Natural Recession Major Capital Payments Open New Disaster Expense 3 Mo + Delayed Program Likelihood 5 years 5% 35% 50% 60% 25% Projections Expected Earned Income $ 450,000 $ 400,000 $ 430,000 $ 450,000 $ 337,500 $ 500,000 Grants $ 350,000 $ 300,000 $ 325,000 $ 400,000 $ 350,000 $ 350,000 Fundraising $ 150,000 $ 200,000 $ 135,000 $ 150,000 $ 150,000 $ 150,000 Investment & Other $ 50,000 $ 50,000 $ 25,000 $ 50,000 $ 50,000 $ 50,000 Total Income $ 1,000,000 $ 950,000 $ 915,000 $ 1,050,000 $ 887,500 $ 1,050,000 Projected Expenses $ 950,000 $ 1,450,000 $ 900,000 $ 1,150,000 $ 950,000 $ 1,150,000 Net Income $ 50,000 $ (500,000) $ 15,000 $ (100,000) $ (62,500) $ (100,000) Existing Operating Reserves $ 250,000 Months of Reserves 3.2 New Needs: Natural Disaster $ (500,000) Recession 0 Major Capital Expense $ (100,000) Payments Delay $ (62,500) New Program $ (100,000) Total New Needs: $ (762,500) Plus Existing Reserve $ 250,000 Total Reserve $ 1,012,500 Months of Reserve 12.8

12 Building Reserves The Nonprofit Operating Reserves Workgroup, realizing that it can be very difficult to set aside funds for reserves, observed: The real question is Can we afford not to have an Operating Reserve? In our experience, we have seen nonprofits with inadequate financial resources: Spend too much energy managing their cash flow Forced into making short sighted spending decisions Not capable of capitalizing on new opportunities Experience frequent lay-offs Abandon clients in the middle of programs Eliminate staff and become an all volunteer organization Go out of business The frustrating question for many nonprofits is how do I build a reserve? We suggest incorporating a line item into the annual budget for increasing reserves. This should be treated as seriously as the electric bill. In addition, Capital campaigns to fund new Fixed Assets should cover the costs of reserves to maintain the new property. Realistically, it can take years to create adequate reserves. A 5% margin on Operating Expenses, which many would envy, will take 5 years to create 3 months of reserves. For that reason, we would encourage allocating windfall amounts to reserves. We know of two methods for setting a target on the annual Surplus. The first is to determine the desired level of Cash and Reserves and create a multi-year plan to bridge the difference. This is often done as a part of a Strategic Plan. Generally it takes many iterations of a financial model to come up with an Annual Surplus that best trades off meeting current needs versus building future security. The second method comes to us from Woods Bowman, a nonprofit economist at DePaul University. He has developed a method of estimating the annual surplus sufficient to sustain a nonprofit over the long term. In his view, the sustainable Surplus (or profit) is the amount that will grow the balance sheet at the long term rate of inflation. He calculates the long term rate of inflation at 3.4%. The formula is as follows: Total Assets X 3.4% = Sustainable Annual Surplus This assumes that the balance sheet is the right size. For many, if not most nonprofits, this would apply only after the balance sheet is improved. Any failure to grow at the rate of inflation will result in either a draining of financial assets or a draining of capital assets. An example of draining capital assets would be allowing deferred maintenance to accumulate. An example of draining financial assets would be increased use of a Line of Credit. He has created an on-line calculator to assist in estimating the size of a capital campaign necessary to fund a failure to create annual surpluses.

13 The Woods Bowman approach may not work for all nonprofits, especially the ones that are growing rapidly, but it is the best guidepost we have seen. Nonprofits that are growing at rates in excess of inflation will need to develop a multiyear plan alluded to before to forecast their Surplus needs. This is similar to extending the Cash Flow in Exhibit 2 for 3 to 5 years or more. Typically year 2 and 3 are forecast by quarters, and subsequent years are annual forecasts. Allocating scarce capital to reserves rather than current needs can be especially painful for human service nonprofits. It is a constant tradeoff of providing service today versus securing the future. Permanent Capital Endowments and Quasi-Endowments Nonprofits with a perpetual mission, a 10 year record of successful programs and a strong donor base can consider using an endowment as a source of funding. This is an opportunity to match long term financial resources with a long term need. In fact, one economist has suggested that endowment funds create the balance between meeting today s needs and the needs of future generations. This is clearly a best practice for Colleges, Independent Schools, nonprofit Hospitals, Parks, Botanical Gardens, and Museums. More and more Conservation Trusts will not accept new easements or properties, without an endowment for perpetual stewardship. Not coincidently these are organizations with lots of Fixed Assets. The fundraising skills needed to fund a physical plant have much in common with the skills needed to fund an endowment. As pointed out earlier, more real estate provides more risk, so this is an opportunity to balance that risk with a long term income stream. Endowments have their own definitions and language: True Endowments are Restricted Funds, where the earnings may be withdrawn to support the nonprofit, but the principal must remain intact. Endowment returns may be designated for specific uses or they can be designated as general purpose funds. Quasi-Endowments are Unrestricted Funds that are board designated either as reserves or to provide general support. Endowments typically are funded by outside donors, while Quasi- Endowments can be created from annual surpluses or from fundraising that is not restricted.

14 Some boards choose to simply keep unrestricted funds that are not needed for day to day purposes, as Undesignated Unrestricted funds. As these accumulate, we recommend that the board designate them and segregate them by purpose. Funds to be used for long term support can be segregated from other funds and may be invested in longer term, high return investments as opposed to funds that are designated to cover items such as emergency maintenance issues. Two key ratios help us define how endowments work. The first is the Spend Rate. This is the percentage of an endowment s and unrestricted funds set aside for long term support that can be spent in a given year. The Spend Rate is often set at 4%, but foundations must use at least 5%. The other key ratio is the targeted Endowment Support Ratio. This is the percentage of annual expenses that the endowment is designed to fund. As an example, let us assume a nonprofit with an annual budget of $5,000,000 that wants to have a 10% Endowment Support Ratio generating $500,000 in annual support. If we assume a 4% Spend Rate, we can calculate the endowment size to produce the desired support. The formula is as follows: Annual support of $500,000 / 4% Spend Rate = $12,500,000 Endowment Guidelines on the decision to raise an endowment are few. We suggest benchmarking financial resources against comparable organizations. Are endowments common among peer organizations? What is the typical Endowment Support Ratio? Can a trade association provide guidance? Since investment returns vary greatly quarter to quarter; most nonprofits use a smoothing computation that takes into account 12 to 20 quarters in computing the amount of quarterly withdrawals under the Spend Rate policy. The decision to create an Endowment or a Quasi-Endowment or both is typically an output of a strategic planning process that includes extensive financial modeling and may be informed by a capital campaign feasibility study. We have heard of nonprofits with long, but not perpetual missions, who have developed term endowments. These are designed to be spent down at a rate of more than 4% in order to eventually self-liquidate.

15 Summary Putting it all Together We have outlined the three types of financial resources: Cash, Operating Reserves, and Endowments; Exhibit 6 gives an Overview of how it all fits together. Nonprofits that are able to develop strong financial resources are much better at accomplishing their mission over time. They can avoid the short sighted and dysfunctional behavior that is associated with a chronic shortage of financial resources something that plagues many nonprofits. Disciplined budgeting that creates an annual surplus to be invested in building financial sustainability is essential. Exhibit 6 Summary Financial Cash Reserves Endowment Resource When Started Start-up / Early Stage Growth / Maturity 10 Years + Amounts/Buffer Months Buffer Months Buffer Years Buffer Typical 1 to x Annual Cash Need 3 to 36 3 to 6 1 to 7.5 Unrestricted Funds * *Investment returns can be smoothed with a combination of additional Unrestricted Quasi-Endowment funds, where it is possible to draw on principal, and by using a rolling 3 to 5 year balance in determining the actual withdrawal.

16 Glossary Annual Cash Need The estimated variance in cash needed through an annual operating cycle. This can be computed as the difference between the high and low cash balance for a nonprofit that pays its bills within terms without using a line of credit. Annual Operating Expenses Annual expenses excluding any capital purchases and depreciation. Board Designated Funds Unrestricted Funds that the board has designated for a specific purpose. Cash Currency deposited with financial institutions that can be withdrawn without any penalty. Cash Equivalents Short term and very liquid investments that convert easily to cash such as a money market mutual fund. Cash Flow Cash coming into an organization less cash going out often projected month by month over an annual cycle. Current Liabilities Liabilities such as accounts payable, accruals (for example payroll earned by the employees but not paid), and the principal portion of any debt that is due within one year. Endowment Permanently Restricted Funds that are designated by their donor to be managed in such a way to provide perpetual support for operations. Endowment Support Ratio The percentage of the Annual Operating Expenses that the Endowment is expected to support. Line of Credit This is a lending arrangement where the borrower has the flexibility to borrow and repay on a daily basis. Liquidity Cash and Cash Equivalents that do not have donor restrictions; also the financial resources available to fund the organization in the immediate future. Net Assets The net worth of a nonprofit, computed as Total Assets less Total Liabilities. Net Assets consist of Unrestricted Funds, Temporarily Restricted Funds, and Permanently Restricted Funds. Nonprofit Current Assets Assets that are cash or are expected to be converted to cash within 12 months such as and Cash Equivalents, accounts receivable and pledges receivable within 1 year, inventory and prepaid expenses (such as advance payment on an annual insurance policy), excluding any restricted funds.

17 Nonprofit Working Capital Nonprofit Current Assets minus Current Liabilities. Operating Reserves Unrestricted Funds that are not invested in fixed assets or otherwise encumbered. They can be Board Designated for a specific purpose or Undesignated Unrestricted Funds. They are generally held in cash or short maturity debt. Opportunity Fund A Board Designated Unrestricted Fund created to invest in new opportunities that are expected to eventually become self-sustaining. Working Capital Classically defined as Current Assets less Current Liabilities. For nonprofits, the definition of Nonprofit Current Assets above is substituted for Current Assets. This definition excludes Temporarily or Permanently Restricted Assets. Quasi-Endowment Funds These are Board Designated Unrestricted Funds that are designated and invested such as to provide long term support for operations. Restricted Funds Either Temporarily or Permanently Restricted Funds that are restricted by direction of the donor. Spend Rate The percentage of an Endowment that is expected to be spent on an annual basis to support current operations. Surplus The difference between Total Revenue less Total Expenses. This is also the increase or decrease in Net Assets. In the business world it is Profit. Sustainable Surplus The annual Surplus that is required to grow the balance sheet with inflation, and avoid a run-off of Financial Fixed Assets. Temporarily Restricted Funds Funds which a donor has restricted to a certain use (such as support for a new program), or less commonly when the donor has restricted when the funds can be spent. Undesignated Unrestricted Funds Unrestricted Funds that are not invested in real estate or otherwise encumbered. If these funds become Board Designated for a purpose, then they are no longer Undesignated. Unrestricted Funds These are the Net Assets that a nonprofit can use for any purpose. These can be liquid funds and investments in fixed assets. They include Board Designated Funds, Quasi-Endowments, and Undesignated Unrestricted Funds.