Reserves Policy

Why a reserves policy matters

A reserves policy explains why your charity holds some funds rather than spending them immediately. It helps trustees plan responsibly, manage risks, and show funders that resources are being used wisely.

It answers:

• what money the charity has

• why some is held back

• how much is enough

• how this supports long-term sustainability

What are “reserves”?

Reserves are unrestricted funds that can be used freely to support your charity’s work. They do not include restricted funds or endowments. Reserves act as a financial buffer to manage uncertainty and ensure your charity can operate responsibly.

How to think about reserves

The Charity Commission recommends considering reserves through the “4-Cs” framework:

Contingency – for unexpected costs, such as emergency repairs or loss of funding.
Cash flow – to cover timing gaps between spending and receiving income.
Commitments – to fund planned projects or investments that cannot be met by one year’s income.
Closure – to allow the charity to close in an orderly way, meeting obligations to staff, suppliers, and beneficiaries.

Conservation, while not explicitly in the 4-Cs, is also helpful: it covers managing unexpected surpluses responsibly, giving trustees time to plan sustainable spending.

Setting your reserves level

There is no fixed figure. Consider:

• key financial risks (e.g., reliance on one funder)

• the potential cost of those risks

• timing of income and expenditure

• planned commitments

• costs of an orderly closure

You do not need to add everything together—some risks are unlikely to happen simultaneously.

What to include in your policy

A clear reserves policy should explain:

• target level and calculation method

• reasons for holding reserves

• current level of reserves

• any gaps or surpluses and how they will be managed

• a commitment to review the policy regularly

Key points

• Holding some reserves is expected; excessive reserves without purpose can raise questions.

• Too little reserves can put the charity at risk.

• Restricted funds cannot be counted as reserves.

• Designated funds for planned projects should be clearly explained.

• Policies should reflect the charity’s specific activities and risks.

A good reserves policy is realistic, clear, and demonstrates trustees’ responsible stewardship, helping to build trust with funders, donors, and beneficiaries.