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Charity reserves - can they help support you during a pandemic

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Reserves are important for your charity. They are the unrestricted funds that are readily available to spend. They do not include any restricted and endowment funds, any money that is tied up with your fixed assets or ongoing programmes or funds you have designated for another purpose. 

Reserves are important in terms of good financial governance and to ensure that there is some built-in resilience or sustainability for the charity. For most charities, the development of a reserves policy (no matter how simple) and the regular review of the policy is an important governance process. The policy will be clear about why a charity has a particular level of reserves and what the level of reserves is that the charity needs to build in resilience for the organisation.

What often makes a conversation about reserves difficult is the fact that different kinds of charities will need different levels of reserves. If you are a large organisation with a large number of vulnerable beneficiaries dependent on your services, then you will probably need a proportionately greater level of reserves than an organisation that is small, has minimal (or no staff) and is not directly offering services to vulnerable beneficiaries. Reserves are often thought about in terms of how many months’ worth of the charity’s expenditure need to be kept ‘in case of a rainy day’, but there is no rule about how many months that needs to be.

The resilience that reserves offer is meant to be there to sustain the organisation at difficult times. This is a very difficult time. You may, therefore want to look at whether you should be using some of your reserves to help you continue to deliver your charitable activities at this time. 

Here are 8 things you should think about in terms of reserves.

  1. What is your current level of reserves? Make sure you have up to date information on this. If you are not sure how to calculate your reserves, please see section 1 of our reserves factsheet.
  2. What does your reserves policy say? Understand what the policy means in practice for your charity so that you can make an informed decision about using any reserves. Consider if there are aspects of the policy that you might want to rethink because of the particular situation you are in.  If you decide that you need to consider using your reserves now, does the policy make it easy for you to free up money for other day to day activities? 
  3. Should you also be thinking about using designated funds? You may also wish to look at any designated funds that the charity has and whether retaining these funds remains the right choice for the charity. Designated funds are a portion of unrestricted funds that the charity trustees have set aside for a particular purpose.  Because the charity trustees have made the designation, it is in their power to change how these funds are used.
  4. How much can you afford to spend? Neither charity law nor OSCR set out a minimum amount a charity must retain in reserves. However you should consider the long-term financial position of the charity when deciding how much you can use now. This is an important decision, so make sure the trustees have a good discussion. Bring in someone with relevant skills to help if that would be useful.
  5. What would it mean for your charity if you used reserves now? Using reserves now may help in the short term but if your reserves policy included accumulating funds for new initiatives, opportunities or other projects, using funds now means it may not be possible to do this in the future.
  6. Have you considered other funding opportunities? If your charity requires funds to help it deliver its activities, have you explored all of the support schemes available? You might be able to use a combination of these funds alongside using some of your reserves.
  7. Are you putting what is in the interests of your charity at the core of your decision-making? Try to balance the current situation with what it might mean for the charity in the future, always making sure you are thinking about the best interests of the charity. 
  8. Are you recording your decision-making appropriately? Record why you made the decisions you did, both in terms of any decision to use reserves now and any changes you have chosen to make to your reserves policy.