In mid-2020, the board had a detailed discussion around budget, expenses, and our financial reserve goals. The board formally recommended this policy to the members on August 8, 2020, with the intent of adopting it at the next quarterly meeting.
A financial reserve goal is an amount of money held in reserve by the co-op to cover unexpected expenses. The financial reserve might be used to cover increased costs for budgeted expenses (such as an increase in monthly costs at our ISP) or might be used to cover one-time emergency costs (such as the large Cogeco network surcharge levied in 2019). Any large one-time expenses outside of the budget still need board approval (per the ExpensesPolicy).
Once the reserve goal has been met and expenses are known to be stable, the board will need to decide, with the help of the membership at large, how to best use the co-op's excess revenue.
Note: Per the terms of the co-op's incorporation, if the co-op were to disband, any remaining funds would be split between members in proportion to the amount of business done with the coop.
The board has decided to structure the reserve goal in terms of budgeted expenses, because we need to pay those expenses in order to remain solvent. Knowing our monthly and yearly budget gives us something concrete to plan against.
The reserve goal is calculated as:
- $reserve_goal = $reserve_months * ($yearly_budget/12) + $fixed_reserve
The related goal for cash on hand is then:
- $cash_on_hand = $member_balances + $reserve
In August of 2020, the board set the reserve goal to:
- 12 months * $(4715/12) + $100 = $4815
Current cash on hand was approximately $5000, including $4000 of member balances, leaving a current reserve of approximately $1000. With dues steady at $7/month, we expect to reach the reserve goal by the end of 2021.