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Non Profits: How to manage strategic reserves

Nicola May, Partner, Non Profits
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Build into your charity’s planning cycle

Discussion around reserves has risen up the agenda again – some would argue it has never dropped off, but from the conversations around boardroom tables there has been a renewed focus on how to manage strategic reserves.

Understanding the financial model of the charity allows trustees to plan ahead and incorporate their need for reserves into their planning. Reserves planning should form part of the overall strategic planning of your charity so it is understood how reserves will be used to enable the organisation to reach its goals.

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Reserve planning

  • Strategic reserves are a vital resource for charities and should always be considered during the planning cycle.
  • Reserve planning should always be considered in the context of the charity’s strategy, risks and operational realities.
  • Determining the amount held in reserve can be challenging, and therefore must be well thought out and justified.

Managing strategic reserves

  • Key elements must be taken into consideration:
    • Income
    • Expenditure
    • Nature of reservces
    • Sensitivity and risk
  • External disclosure of reserves should be clear and thorough, utilising the guidelines laid out in SORP 2015.

SORP 2015 disclosure requirements:

1. Your charity must explain any policy it has for holding reserves and state the amounts of those reserves and why they are held. The report must disclose if and why no reserves are to be held.

2. State the amount of the total funds your charity holds.

3. Identify the amount of any funds which are restricted.

4. Identify and explain material funds designated or otherwise committed.

5. Note the likely timing of the expenditure of any funds which are restricted.

6. Identify funds that can only be realised by disposing of tangible fixed assets or PRI.

7. State the amount of reserves your charity holds after making allowance for these.

8. Compart the actual target level and explain the steps to align them.

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Nicola May
Nicola May
Partner, Social Purpose and Non Profits