Our recent Charity trustee insights survey has shed light on several key aspects of reserves management within the charity sector.

Firstly, the survey to date revealed approximately 1 in 4 charities haven’t reviewed their reserves policy within the last year.

On a more encouraging note, 81% of the survey respondents consider restricted income, endowment funds, and other factors in determining reserves, demonstrating that charities are taking a proactive approach to financial planning.

Why managing your reserves for charities matters

Reserves are crucial for the sustainability and stability of charities. They provide a financial buffer that can help organisations navigate periods of uncertainty, cover unexpected expenses, and invest in future opportunities. According to the Charity Commission's guidance on charity reserves, having adequate reserves is essential for maintaining financial health and ensuring that charities can continue to deliver their services even in challenging times.

Three key considerations for your charity’s reserve management

• Financial stability: the survey highlights that a significant portion of charities are actively managing their reserves, which is a positive sign for the sector. However, the fact that approximately 1 in 4 charities haven’t reviewed their reserves policy within the last year suggests there is room for improvement in terms of regular monitoring and updating of reserves policies. Charities should aim to review their reserves policies more frequently to ensure they remain relevant and effective, particularly in the current economic and political climate.
• Transparency and accountability: the survey results indicate that 81% of respondents consider various factors in determining reserves, which suggests a thoughtful and comprehensive approach to reserves management. However, charities should also focus on transparency and accountability by clearly communicating their reserves policies and the rationale behind them to stakeholders. This can help build trust and confidence among donors, beneficiaries, and other stakeholders.
• Strategic planning: reserves are not just about financial stability; they also enable charities to invest in strategic initiatives and innovation. By maintaining adequate reserves, charities can seize opportunities for growth and development, such as expanding their services, investing in new technologies, or launching new programmes. Charities should incorporate reserves planning into their overall strategic planning processes to ensure they are well-positioned to achieve their long-term goals.

Conclusion

While many charities are actively managing their reserves, there is still room for improvement in terms of regular policy reviews, transparency, and strategic planning. By prioritising reserves management, charities can enhance their financial stability, mitigate risks, and invest in future opportunities, ultimately ensuring their long-term sustainability and impact.

As part of our Charity trustee insights series, we delve into key topics for charity trustees to consider across the charity sector, including governance, reserves, digital transformation and finance function.

If you would like to discuss the importance of reserves for your charity, please contact Nick Sladden, Zoe Longstaff-Tyrrell or your usual RSM contact.