Voluntary management committee members have a duty to use their organisation’s funds within a reasonable time of receiving them. However, organisations need to be able to secure their future, absorb setbacks, and take advantage of change and opportunity. Many provide for this by putting income aside, when they can afford to, as a reserve for future plans, or against future uncertainties.

To overcome the possible perception that an organisation is hoarding its money, and asking the public for funds that are not immediately needed, it is essential to be able to explain the position on reserves. Responsibility for this lies with the voluntary management committee, who should develop, and make clear in the annual report, a justifiable strategy for holding funds in reserve.

It is not acceptable to have a high level of reserves, high in actual terms or even just proportionate to turnover, if they cannot be justified. For charities specifically this could be seen as not properly directing the resources of the charity to the furtherance of its charitable objectives. Long-term commitments to staff or leases, or refurbishment plans which may have to be paid out of reserves, should however, be taken into account.

Reserves are often expressed in terms of future weeks’ expenditure. The voluntary management committee may wish to set a target of, say, three months operating costs, to hold in reserve.

One problem with reserves is that some grant makers will not provide funds to an organisation with, as they see it, ‘too much money’ in reserve. When applying for funds, you should establish funders’ policy on reserves.