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Lots of great insights into charity reserves circulating. In addition to them being almost impossibly hard for some charities to build up, there is also the very real challenge of knowing what amount is the right amount.
There is a wide spread perception that 3 or 6 months is best practice and/or required by the Charity Commission. I won't repeat CC19 here but it actually suggests a more sophisticated risk based approach when determining the target level
This is good as it enables Trustees to use their judgement taking into account all they know. We all know that it is impossible to generalise for the 167k orgs on the register. This is particularly true when it comes to reserves. Some orgs need more than others.
Anyone who has had to set a reserves policy gets that there is no perfect answer and no one size fits all. There is a lot to consider. Certainty of income. Flexibility of costs. Predictability of needs. Liquidity of assets etc etc.
One of the biggest gravitational pulls is funders' eligibility criteria. There is, understandably, no uniformity of practice. There is also, very commendably, transparency in practice with many funders being v clear about their cut off in their eligibility criteria.
The unintended consequence is that the practice of stating a cut off, coupled with the fact that there is a range of cut offs, has created a significant distortion in the financial planning of many orgs in my experience.
It has made it more myopic. More externally driven. More of a blunt instrument. Less resilient. In the 20 odd years I have been in the VCSE sector this is the most joined up and the most reflective I have known it. This is a good thing
It takes a whole village to raise a child and a whole sector to build organisational resilience. Reserves caps are a small thing well intended but with unintended consequences. Please can we add this to the mix. / End
