All charities need reserves to safeguard their future should the 'roof blow off' or their major source of funds dry up. But are reserves just a time bomb waiting to blow up in the face of well-intentioned trustees?
Most trustees actively encourage the building of reserves as protection against the unexpected — a prudent measure as most would agree. But what amount of reserves is considered essential? At what stage can your charity be accused of hoarding funds? The charge of misusing charitable funds has seen several well-known charities attract unwelcome headlines in the media, causing a loss in fundraising income — the very thing that the reserves were there to guard against.
What to do? Thankfully the answer is pretty straightforward. Trustees must decide on a clear policy that justifies the level of reserves they are holding. There are several methods one can use to calculate the right level of reserves for your organisation.
Patrick Boggon has recently been studying this problem, and if you feel your charity might benefit from advice here please feel free to contact us.
(January 2001)