This definition excludes restricted income funds and endowment funds as these must be spent in a specific way. Reserves will also normally exclude tangible fixed assets held for the charity’s own use. This is because these assets are used by the charity to deliver their activities and as such cannot be sold to meet a funding deficit. Amounts already set aside for essential future spending (designated funds) are also excluded from reserves.
To get your reserve starting point figure take the total funds of the charity minus any restricted funds, fixed assets and money already set aside for future activities. The calculation can be split in two:
Reserves don’t include tangible fixed assets or designated funds.
Once you have your starting point the charity trustees can start to look at what level of reserves you want to hold back.