The Scottish Council for Voluntary Organisations is the membership organisation for Scotland's charities, voluntary organisations and social enterprises. Charity registered in Scotland SC003558. Registered office Caledonian Exchange, 19A Canning Street, Edinburgh EH3 8EG.
Reserves
Charities and voluntary organisations have a duty to use their organisation’s funds within a reasonable time of receiving them. However, organisations need to be able to secure their future, absorb setbacks, and take advantage of change and opportunity. Many provide for this by putting income aside, when they can afford to, as a reserve for future plans, or against future uncertainties.
Thinking about reserves in uncertain times
Thinking about your reserves policy is particularly important during the current cost of living crisis. Some voluntary organisations and charities had to draw on their reserves during the pandemic to keep operating, and your organisation should consider now how you may need to use your reserves to protect your work from the risk of disruption and meet your mission.
Why should you have a reserves policy?
We normally want to be able to show that we’re spending effectively to deliver services and achieve our goals, so it might feel harder to justify why we are putting money aside.
A reserves policy can help you outline what your reserves are, how they’ll be kept, where they come from and in what circumstances you might need to use them.
When outlined well, your reserves policy can:
- Show donors, funders and beneficiaries how the trustees are managing the organisation’s money
- Avoid any perception that your organisation is hoarding money and asking the public for funds that are not immediately needed
- Help you plan ahead so your organisation is effective and sustainable
- Show that you are effectively your assets to meet your charitable aims
Who is responsible for the reserves policy?
Your trustees should develop a reserves policy and make clear, in the annual report, a justifiable strategy for holding funds in reserve.
What do you need to think about?
- Consider your future strategy and use your Risk Management Policy to consider any risks that apply to your organisation (eg an increase in costs or a reduction in funds). This will help you work out how much it would cost if the risk occurred.
- Look at what your working capital is and your spending priorities.
- Reserves are often expressed in terms of future expenditure over a certain time. The trustees may wish to set a target of, say, 3-6 months operating costs, to hold in reserve.
- Consider how you manage your reserves, and if you are making the most of your money. Moneyfacts has a charity savings comparison table.
- If your organisation has a lot of money you need to think about spreading the risk between banks in case your bank fails. The FSCS offers protection for up to £85,000 of money held with a UK regulated bank or building society. If a bank collapsed then potentially you would be covered up to that amount.
Template reserves policy
Members get access to a range of additional resources, like our downloadable templates and model policies
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The Scottish Charity Regulator (OSCR) has a useful Charity Reserves Factsheet.
This is a recording of our webinar from our Open Door sessions about the importance of good reserves policies and action. It includes a presentation from Chiene & Tait LLP, giving expert advice on reserves.
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