Question 1

How much reserves should a charity have?

Accepted Answer

How much reserves your charity should have depends on a number of factors, but 3 to 9 months is generally accepted as a rough estimate of how much you should hold.  In deciding, you might wish to consider how much cash might be needed to get through a crisis and how much it would cost us to close down.

Question 2

How Do I Calculate Charity Reserves?

Accepted Answer

There is no specific calculation to use in calculating the free reserves your charity might need.  Factors to take into account - the degree of uncertainty in your income forecast, security of income streams, amount of monthly expenditure, ability to reduce service delivery on a temporary basis in an emergency , what regular expenditure might be reduced temporarily and how much it would cost to close down?

Question 3

Can we invest charity reserves?

Accepted Answer

You can invest reserves but these may be needed in the short to medium term. Consequently, whilst investing charity reserves is not an issue, this should be done in a way that ensures the financial reserves can be readily realised as cash, if needed.

Question 4

Why is it important to have a financial reserves policy?

Accepted Answer

A charity financial reserves policy ensures you will be able to maintain adequate free reserves to manage any reasonably foreseeable contingency and comply with Charity Commission guidance.  If your financial reserves are too low, you put your charity’s future at risk and, if too high, funders may be unwilling to support you.

Question 5

Does a charity have to have a reserves policy?

Accepted Answer

There is no regulatory requirement to have a reserves policy but it helps to ensure trustees are able to maintain adequate free reserves to manage any reasonably foreseeable contingency and comply with Charity Commission CC19 guidance.

Question 6

What is Charity Comission CC19?

Accepted Answer

Charity Commission CC19 - Charity Reserves: Building Resilience states that there is no single level, or even a range of, reserves that is right for all charities and that any reserves target set should reflect the particular circumstances of the individual charity.

Question 7

Why is it important to have a charity reserves policy?

Accepted Answer

A charity reserves policy ensures you will be able to maintain adequate free reserves to manage any reasonably foreseeable contingency and comply with Charity Commission guidance.  If your financial reserves are too low, you put your charity’s future at risk and, if too high, funders may be unwilling to support you.

Question 8

What is the Charity Comission guidance on reserves?

Accepted Answer

The Charity Commission CC19 guidance is that there is no single level, or even a range of, reserves that is right for all charities. Any target set by trustees for their reserves should reflect the particular circumstances of their charity. To do this, they need to know why they should hold reserves and how much should be held.

Question 9

What Are Charity Unrestricted Reserves?

Accepted Answer

Restricted reserves are those asset that may only be spent for a specific purpose.  The Charity Commission defines unrestricted reserves as that part of a charity’s funds which is freely available to spend on any of the charity’s purposes.

Question 10

What are Designated Reserves?

Accepted Answer

Designated charity reserves have been designated by the trustees for a specific purposes.  That is unrestricted funds which have been set aside as an essential spend or future purpose, such as funding a project that could not be met from future income.  For example, major but essential building work such as a new building or replacing a roof.

Question 11

Charity Comission guidance on investing reserves?

Accepted Answer

Charity financial reserves can be invested but these may be needed in the short to medium term. Consequently, whilst investing charity reserves is not an issue, this should be done in a way that ensures the financial reserves can be readily realised as cash, if needed.

Question 12

What Are Charity Free Reserves?

Accepted Answer

Charity free reserves are a narrower definition than total unrestricted funds, excluding any funds that are not readily available for spending.  Examples of free reserves might include cash at the bank, readily available deposits and other investments which can reasonably easily be turned into cash.  Free reserves should exclude restricted and designated reserves and fixed assets such as land and buildings.

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