Managing reserves

It helps you to: 

• Justify why you keep reserves (or why you don’t). 
• Explain the risks and costs you've considered when setting the goal for your reserves. 
• Articulate how much you have decided to hold in reserve and why. 
• Detail when it’s appropriate to spend reserves, how they can be spent and any authorisation processes. 
• Set out how you will monitor and report on your reserves. 
• Detail how often the policy will be reviewed and by who. 

• Protect the continuity of your core work, services and activities. 
• Build resilience and safeguard your future. 
• Meet financial obligations, if income streams are disrupted. 
• Manage in emergency situations such as a fire, flood, pandemic or moving to a more expensive facility. 
• Take advantage of unexpected opportunities that further your group's aims. 

• It shows your organisation is well managed. 
• It gives confidence that you can meet the needs of your organisation or are building up your reserves to an appropriate level. 
• It helps to ensure that your reserves are neither too high or too low. 
• It's helpful for participants, members, volunteers, stakeholders and any funders or investors. 
• You can take a proactive approach to balancing the needs of current and future beneficiaries. 

Depending on how your organisation is structured, you may have to create, publish, implement, and monitor your reserves policy. 

Check with your financial and legal advisors.

For example, charities are required to document their reserves policy in their annual report in a way that meets the requirements of the Charities Statement of Recommended Practice (SORP, FRS 102) and Regulations. 

• Any tangible fixed assets you may own like a clubhouse, land or equipment. 
• Any funds you hold that are restricted or ringfenced for projects or programmes.
• Other purposes like sinking funds for replacing equipment/surfaces, volunteer training budgets and pension provision. 
• Long-term investments that you cannot quickly access. 
• Funds to cover debtors or costs you are expecting to incur. 

If you're starting from scratch, it could take years. To accelerate this, consider what you can do to raise extra funds.

You could: 

• Host fundraising events and activities.
• Raise the costs of membership (while ensuring it’s still affordable to people on low incomes).

You should explain why you're doing this and the importance for your group's ongoing security. 

The important thing to remember is that your reserves need to be readily available. You should have instant access to them and your money needs to be protected. 

Future funders or partners may see this as a risk. If something unexpected were to happen, you may be unable to meet your commitments.

If this happens, then your organisation could become insolvent and have to fold.

If you are an unincorporated organisation, your individual members could be personally responsible for any debts and contractual obligations. It's important to protect them from this. 

NB: Consult your accountant or an appropriate expert about your reserve amounts, so that they can put them in context with the rest of your finances.  

It could:

• Lead to challenges, from your members, workforce or funders, on why these funds haven’t been invested in furthering your aims and increasing your organisation’s resilience. 
• Reduce the perceived financial need of your organisation, making it more difficult to attract grants, donations or good will at fundraising events. 
• Put you be in breach of your regulations, for example, charities are required to use excess reserves to further the aims and objectives of their organisation. 

This means you can tie it into your usual budgetary processes and consider its effectiveness.

Check that it's still relevant in light of any changes to your financial situation, the wider financial and funding climate, and any other issues, risks and opportunities you face. 

Review the amount you hold in reserves throughout the year and report back to your committee and/or finance sub-group.

Demonstrate that you have thoughtfully considered all the costs and the risks you might face.