Reserves

Reserves are misunderstood in both directions: charities are criticised for holding too much and for holding too little, often by the same audiences.

What matters is not the amount but the reasoning. Reserves should be sized against identified risks — notice periods, contract commitments, income volatility — and explained.

Calculate free reserves rather than looking at the bank balance, then write a reserves policy. Some funders decline applicants with high unexplained reserves, which is an argument for explaining them.