Reserves policy

Reserves questions are usually asked backwards: how much should we hold? The better question is what the reserves are for, because the answer sets the number.

A reserves policy should state the target range, the reasoning behind it, and what the charity will do if reserves fall outside it. The Charity Commission expects the policy to be explained in the trustees’ annual report where one is required.

Calculate free reserves first — not everything on the balance sheet counts. Then write the policy: see writing a reserves policy. Some funders reject applicants whose reserves look too high, which is a reason to explain them.