The following 3 questions are designed to help guide trustees of smaller charities through the issues that need to be considered when developing their reserves policy.

Question 1. Why might you need reserves for the charity to be effective?

The basis of a good reserves policy is thinking through exactly why you might need to hold back some funds as reserves.  If you conclude that your charity does not need to hold any reserves, then you must explain that in your annual report.

Question 2. How much do you need in reserve?

The reserves level may be a target amount or a target range.  Any financial risks you identify should influence the amount of reserves you target to hold and be explained in your reserves policy.

Question 3. Have you got any funds in reserve at the end of the year?

The final step is to compare what you might need in reserve with what you actually hold.  Where the difference is small, no action may be needed.

Information about the reserves policy and the level of reserves held must be included in the trustees’ annual report.

More detailed information and advice can be found here in Annex 1

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