Reserves are the part of your unrestricted funds that are freely available to spend on your work. They should not include buildings, land and equipment, social investments or money set aside for future project commitments. In this way reserves is money that is truly available to use if needed. Reserves are kept so you can comply with your legal duties to act in the interests of your organisation and its beneficiaries, to act with reasonable care and skill, to protect and safeguard the assets of your organisation and to ensure that your organisation is accountable.
In practice this means:
- Planning to maintain essential services for beneficiaries.
- Covering the risk of unplanned closure.
- Planning for the risks of unplanned closure on your beneficiaries, staff and volunteers to ensure you can meet your spending commitments and liabilities.
Trustees should decide the level of reserves your organisation needs and develop a reserves policy that sets out the level of reserves and why they are necessary. Having a reserves policy can also reassure creditors that the organisation can meet its financial commitments. Your reserves policy should consider the risks of holding reserves that are either too low (so you do not have enough to cover unplanned closure or cannot maintain essential services for beneficiaries) or too high (which may mean that funders are less likely to fund your work).
Further information can be found from: