What does an effective reserves policy look like? And where should trustees begin?
Reserves are much more than a statement about the financial health of your charity. Amid growing media and public interest in fundraising practices, a robust reserves position will send a clear message to funders and beneficiaries that you are well-led, well-managed and well-run.
Ultimately, it is up to trustees to work out how much your charity needs to keep in reserves. A balance must be struck. Too little, and you could be exposed to shifts in donor contributions, contracts or fundraising. Too much, and questions could be asked about whether you are managing resources in the best in interests of beneficiaries.
'Reserves are that part of a charity’s unrestricted funds that is freely available to spend on any of the charity’s purpose – charity commission'
But how much you have in reserves is just one side of the equation. Charities must also publish and implement a robust reserves policy that sets out a target level of reserves and a plan for how to get there. Yet RSM’s analysis shows many charities are struggling to deliver this effectively.
Our review of 132 large charities reveals significant gaps in how trustees calculate their reserves position and how they communicate their plans with internal and external audiences. Just 6 per cent have brought forward documents in line with what RSM considers to be best in class practice.
It is critical these shortfalls are tackled. In turbulent times, financial resilience will help charities stay flexible and adaptable so they can continue to fulfil their commitments to beneficiaries. A well-thought-out reserves policy is now more important than ever before. Download the full report and discover how your charity’s reserve policy compares to others in the sector.