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Are you protected from rainy days?

Do you have a reserve? That's an amount of money that's freely available to spend, if and when you need it.

This is your rainy day money that must only be used to further the aims of your organisation.

Here's how you can plan your reserve and help to safeguard your organisation's future... 

    Reserves Q&A

    • What is a reserves policy? 

      This sets out your organisation’s agreed approach to reserves.

      It helps you to: 

      • Justify why you keep reserves (or why you don’t). 
      • Explain the risks and costs you've considered when setting the goal for your reserves. 
      • Articulate how much you have decided to hold in reserve and why. 
      • Detail when it’s appropriate to spend reserves, how they can be spent and any authorisation processes. 
      • Set out how you will monitor and report on your reserves. 
      • Detail how often the policy will be reviewed and by who. 


    • Why is it important to have reserves?

      A reserve will enable your organisation to: 

      • Protect the continuity of your core work, services and activities. 
      • Build resilience and safeguard your future. 
      • Meet financial obligations, if income streams are disrupted. 
      • Manage in emergency situations such as a fire, flood, pandemic or moving to a more expensive facility. 
      • Take advantage of unexpected opportunities that further your group's aims. 
    • What are the benefits of having a reserves policy? 

      Having a reserves policy is a good idea because: 

      • It shows your organisation is well managed. 
      • It gives confidence that you can meet the needs of your organisation or are building up your reserves to an appropriate level. 
      • It helps to ensure that your reserves are neither too high or too low. 
      • It's helpful for participants, members, volunteers, stakeholders and any funders or investors. 
      • You can take a proactive approach to balancing the needs of current and future beneficiaries. 
    • Do we need a reserves policy?

      You may legally need one. 

      Depending on how your organisation is structured, you may have to create, publish, implement, and monitor your reserves policy. 

      Check with your financial and legal advisors.

      For example, charities are required to document their reserves policy in their annual report in a way that meets the requirements of the Charities Statement of Recommended Practice (SORP, FRS 102) and Regulations. 

    • What should your reserves policy exclude?

      It’s important to exclude: 

      • Any tangible fixed assets you may own like a clubhouse, land or equipment. 
      • Any funds you hold that are restricted or ringfenced for projects or programmes.
      • Other purposes like sinking funds for replacing equipment/surfaces, volunteer training budgets and pension provision. 
      • Long-term investments that you cannot quickly access. 
      • Funds to cover debtors or costs you are expecting to incur. 
    • How can we build up our reserves?

      This isn't easy.   

      If you're starting from scratch, it could take years. To accelerate this, consider what you can do to raise extra funds.

      You could: 

      • Host fundraising events and activities.
      • Raise the costs of membership (while ensuring it’s still affordable to people on low incomes).

      You should explain why you're doing this and the importance for your group's ongoing security. 

    • Where should we keep our reserves? 

      Get independent advice from an appropriate source.

      The important thing to remember is that your reserves need to be readily available. You should have instant access to them and your money needs to be protected. 

    • What happens if our reserves are too low?

      If they're too low, your organisation may be financially vulnerable.

      Future funders or partners may see this as a risk. If something unexpected were to happen, you may be unable to meet your commitments.

      If this happens, then your organisation could become insolvent and have to fold.

      If you are an unincorporated organisation, your individual members could be personally responsible for any debts and contractual obligations. It's important to protect them from this. 

      NB: Consult your accountant or an appropriate expert about your reserve amounts, so that they can put them in context with the rest of your finances.  

    • What happens if our reserves are too high?

        If your reserves are too high, this could be problematic. 

      It could:

      • Lead to challenges, from your members, workforce or funders, on why these funds haven’t been invested in furthering your aims and increasing your organisation’s resilience. 
      • Reduce the perceived financial need of your organisation, making it more difficult to attract grants, donations or good will at fundraising events. 
      • Put you be in breach of your regulations, for example, charities are required to use excess reserves to further the aims and objectives of their organisation. 
    • How often should our policy be reviewed?

      Reviewing your policy annually is a good idea.

      This means you can tie it into your usual budgetary processes and consider its effectiveness.

      Check that it's still relevant in light of any changes to your financial situation, the wider financial and funding climate, and any other issues, risks and opportunities you face. 

    • How often should we update the committee on reserves?

      There are no set intervals, but do it regularly. 

      Review the amount you hold in reserves throughout the year and report back to your committee and/or finance sub-group.

    • Should we be cautious or optimistic in our approach?

      Be realistic!

      Demonstrate that you have thoughtfully considered all the costs and the risks you might face.   


    What should a reserve policy cover?

    Every organisation is different, and it's important that your reserves policy reflects your circumstances and financial position. You should also get specialist advice to determine any legal requirements for your policy. 

    Here are some of the areas you may want to cover... 

    The agreed aims of your organisation - in other words, the reasons why you exist! 
    Why you've decided to create a reserves policy. 
    The definition that you'll be using for 'reserves' in your policy.      

    Operating context
    A high level overview of the size and complexity of your organisation.

    This should include your asset base, people base (including any staff), contracts, governance structure, normal operating costs, how you usually generate your income, your trading history, and the stability of your operating environment. 
    Reserve amount(s)
    The minimum and maximum reserves you'll need - and why.

    Include an explanation to show how you've arrived at these figures.     
    Use of reserves
    What can your reserves be used for?

    What are the authorisation processes that you'll need to go through, to access the funds? 
    Funding of reserves 
    How you will raise the money for your reserves? What steps you will take to maintain them at the agreed level?

    Explain any shortfalls or excesses and any plan to bring them in line with your target. 
    Accounting for reserves 
    How you will record your reserves in your financial records?

    Where will the funds will be held so that they are readily available if you need them?
    How you will implement your policy?

    Who will be responsible for doing this? 
    Links to other policies and plans 
    How will your policy links to other governance and financial policies, your legal structure, and your strategic and operational plans?
    Monitoring, reporting and review
    How will you ensure that you monitor your reserves and their usage?

    Who is responsible for this and who will they report to?

    How often will you review your reserves policy and who is responsible for doing this? 
    Your organisation’s approach to risk and risk management.

    Include an overview of the financial risks you face and your approach to managing these risks.

    This will help inform the amount of reserves you might need. 

    How much money do you need in your reserves?

    There is no hard and fast rule on exactly how much money you'll need in your reserves. 

    You're likely to need a sizeable amount if you offer a wide range of activities, lease or own your own facilities and employ staff or contractors. 

    You'll probably need smaller reserves if you're an organisation that has one team and hires a local pitch for training and matches.

    Here are some factors to consider, that will help you to work out how much you'll need... 


    Get expert advice
    Talk to an accountant or other financial specialist to see what they suggest.
    Consider unforeseen emergencies
    How much would you need if there's an unforeseen emergency? For example, flooding, fire, pandemics or losing access to your facility.

    Consider the impact on your income and expenditure. You may have restricted funds put aside for specific uses.   
    A dip in income
    Think how much you'd need if your income falls below your expectations. For example, if there's a drop in memberships, grant income or sponsorship.
    Operational costs
    How much would you need to cover unforeseen operational costs?

    For example legal or staffing costs, replacing broken equipment or increases in insurance premiums. 
    Redundancies and pensions
    How much would you need to cover any redundancy costs and / or any pension liabilities?
    Future opportunities
    Would you be able to take up opportunities that could further the aims of your organisation? For example, could you provide match funding for a grant?