Keeping your Charity on the Right Track: Charity Reserves

Welcome to month four of our MHA Keeping your Charity on the Right Track series. This month we take a look at the Charity Commission’s update to its guidance on reserves and the responsibilities and legal duties for trustees around building financial resilience.

Month 4 – Charity Reserves: Building Financial Resilience

At the start of 2016, on the back of much media attention on the financial regularities of the not for profit sector, the Charity Commission published an update to its guidance on reserves (CC19 – Charity reserves: building resilience). The guidance clarifies the meaning of what should be classed as reserves. Briefly, they are unrestricted funds that are freely available (so no designated funds towards future spending plans and no fixed assets) and readily available cash that can be called upon momentarily. There is no formula to apply and no legal levels set; every charity has its own personal circumstances which should be reflected.

Therefore, tailoring a reserves policy is crucial to give an understanding of the charity’s position (both current and future) and indicative of the Charity Commission’s expectations. This demands regular reviews (across the financial period, not merely at the balance sheet date), flexibility, explanation and direction is to be applied.

Checklist for Month 4:

  • In terms of reserves, think liquidity and availability – how much unrestricted cash do we have?
  • What reserves do we need? Have we adequately reviewed and assessed our liquidity requirements recently? The level of reserves is a key balance to get right when trying to attract investors: what will they consider too much (either not enough focus on the frontline objectives, or simply no requirement for funding) or not enough (poorly planned and vulnerable).
  • Is our reserves policy a sustainable model that allows us to meet our objectives and requirements for service
  • Have we adequately documented our policy and our reasoning behind it?
  • Can our reserves be invested for a financial return, whilst still remaining a liquid asset?
Read month 4


Download the full month to month guide here. You can also review the previous three sections below:

This monthly guide was put together along with our Charity and Not For Profit colleagues across our national association MHA. If you have any questions about charity reserves or compliance in general please contact us on 01903 234094.