Often, however, reserves policies are paper exercises for compliance purposes because reserves are seen as inert money you can’t use – a ‘rainy day’ savings fund in case of dire emergency which stereotypically the accountants want to preserve, and the operational staff want to spend. It can also seem pointless to be thinking about saving up in an environment where you struggle to break even, which is why the suggested policy is written in terms of purpose – ‘to protect the continuity of our core work’ - rather than ‘to cover three months of unrestricted spending’.
Your organisation will need to go through each of the criteria and put a number to it, or perhaps a range of numbers. Here are some things you may want to consider:
| To provide a level of working capital that protects the continuity of our [core] work |
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|---|---|
| To provide a level of funding for unexpected opportunities |
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| To provide cover for risks such as unforeseen expenditure or unanticipated loss of income |
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It is also a good idea to bear in mind the disclosure requirements on reserves for the trustees annual report and make sure that any policy easily allows you to comply with these. You have to state:
- the level of reserves held
- why they are held
- the purpose of material designated funds and if for future expenditure, the likely timing of that.
Like any forecasting exercise, this isn’t easy but there is plenty of good guidance to refer to – you could start with:
- CC19 Charity reserves: building resilience
- Beyond Reserves (Charity Finance Group) (pdf, 307KB)
- Reserves Policies Made Simple (pdf, 549KB).
Templates
NCVO members can download our financial procedures manual templates.
