This resource provides an example reserves policy template, explains why a reserves policy is important, what you should include, the different types of financial reserves, questions to ask yourself and links to resources to help you. It is a simple guide to the Charity Commission CC19 guidance on reserves and is aimed primarily at small charities.
Having a charity financial reserves policy will ensure you are able to maintain adequate free reserves to enable you to manage any reasonably foreseeable contingency. If your reserves are too low, you put your charity’s future at risk and, if too high, funders may be unwilling to support you. This simple guide and reserves policy template is aimed primarily at small charities.
The Charity Commission Reserves policy guidance is set out in CC19.
There is no single level, or even a range of, reserves that is right for all charities. Any target set by trustees for the level of reserves to be held should reflect the particular circumstances of the individual charity. To do this, trustees need to know why the charity should hold reserves and, having identified those needs, the trustees should consider how much should be held to meet them.
Your reserves policy should set out how:
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The Charity Commission defines reserves as that part of a charity’s unrestricted funds that is freely available to spend on any of the charity’s purposes. That includes cash at the bank, deposits and other investments which can reasonably easily be turned into cash.
Free reserves should exclude:
How much you need depends on a number of factors, but 3 to 9 months is generally accepted as a rough estimate of how much you should hold. My own crude rule of thumb is a minimum of 3 months, because I reckon that's the minimum time needed to replace the loss of a substantial income stream.
Two things to consider:
Questions you might ask yourself in considering what your reserve policy should be.
The CEF has a toolkit you can use to assess your financial sustainability and a simpler one for small charities. It also has toolkits that help you reduce your costs without reducing impact and how to maintain cash flow in an emergency.
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I have worked in the sector at senior level for many years and, for those who value these, I hold a number of professional qualifications. However, I am not an accountant or lawyer and no advice can be applicable to all organisations, in all circumstances, so this resource does not constitute professional opinion. Essentially, I've summarised the regulatory guidance and augmented this with my own experience and Internet research to create a layman's guide, with links to the source guidance. I hope you found it useful.