Helping organisations that do good

Reserves

reserves

There’s a really difficult balancing act for small charities and social enterprises when it comes to reserves.  Too much, and funders will think you don’t need their grant.  Too little, and if anything goes wrong, then you are faced with making hard decisions, reducing delivery or potentially closing. 

Good practice is for organisations to hold ‘an appropriate level of funds in reserve’ to help them cope with the unexpected; and if necessary, safely wind up the organisation – ensuring liabilities and debts are paid off.   

The Charity Commission provides guidance on reserves which, above all, emphasises that trustees should have a reserves policy. And that the reserves policy needs to be based on an informed view of the organisation’s finances and the risks involved.  

Charity reserves: building resilience – GOV.UK 

“A good reserves policy gives confidence to stakeholders that the charity’s finances are being properly managed and will also provide an indicator of future funding needs and its overall resilience.” [Charity Commission guidance] 

It is fairly common for small organisations to aim to have somewhere between 3 and 12 months running costs as their reserves policy.  The following will impact on your decision as to where within this range you prefer to be: 

  • Ownership of assets (eg property or land) 
  • The length of fixed term leases or contracts held 
  • The number of staff with permanent or long-term contracts – and any redundancy costs you would need to meet 
  • The proportion of your income that is guaranteed, and the proportion that varies each year 
  • The vulnerability of your clients & the depth of support you offer 
  • The amount of flexibility you have in delivery – is your delivery set, or do you have plans to trial new services or activities 
  • Your Board’s comfort with risk 
  • Whether reserves are used as investments to bring in income 

Your reserves policy should be really clear on why you have made the decisions you have.  And it should be set for a level of reserves that balances the longer term security of your organisation with the current delivery needs. 

Useful sources of information: