What mix of income should a charity aim for?

England and Wales: This page sets out the position in full. Scotland: the same answer, and OSCR states the diversification point more directly than the Commission does — see the section below. Northern Ireland: covered in part. CCNI publishes its own reserves guidance, which reaches the same conclusion as the Commission’s, so the reserves half of this page holds there in full; but no Northern Ireland source addresses the income-mix question itself, and none of the three nations has one.

Should you run reserves down to look needier to funders?

No, and it is the first thing for trustees to settle before setting a charity income mix. The Charity Commission’s guidance for England and Wales advises the opposite, and OSCR reaches the same conclusion in Scotland. This is the one piece of hard evidence on the page, and it corrects a belief that does real damage. The target is set against your income map, so if you have not yet mapped your income and found your concentration risk, do that first.

Charities spend reserves down before a funding round because they think healthy reserves will count against them. The regulator’s advice is the opposite. The Commission’s guidance says trustees should understand a funder’s policy on reserves and then explain their own:

If the reserves appear too large, there may be an assumption that the charity does not have a need for additional funds… Where trustees are seeking grants or contracts from funders they should ensure that they understand the funder’s policy towards applicants’ reserves [and] seek opportunities to explain… their charity’s reserves policy.

Explain, do not shrink. That is guidance rather than law, so the word is should. But it is the regulator’s own word, and it points squarely against the common practice.

The explanation belongs in your reserves policy, and it starts from one figure. If the board does not have it yet, calculate your free reserves and then write your reserves policy.

Which major funders publish a position on reserves?

Of the 11 biggest UK funders in this guide’s records, exactly one publishes an explicit position on applicants’ reserves, and it is a case-by-case one. The belief that reserves count against you persists partly because funders say so little. Esmée Fairbairn’s published wording, verbatim:

We consider an organisation’s reserves on a case-by-case basis… If an organisation has relatively high reserves: we would want to understand why they are seeking our support and what is the best use of our resources given the high demand for our funding.

Nothing was found on the other ten. That is “not found”, not “confirmed absent” — so do not read it as permission to ignore the question. Read it as the reason to have an answer ready.

A charity whose reserves sit in designated funds against a named risk has one. A charity with an unexplained balance does not.

What income mix should the board set?

Set the one you can defend. A charity’s income mix is the spread of its income across its sources, and the share of the total that each one provides. The useful question is not “what should our mix be?” but “what would it take to survive losing our largest source?”

Work through it in this order:

1. Take the largest share from your income map and the date it ends.
2. Decide what share the board is willing to live with by the end of the period, and say why in one sentence.
3. Name where the difference comes from — a second grant funder, earned income, regular giving, local fundraising. A target with no named source is not a target.
4. Write down what you will stop doing if it does not arrive. This is the part boards skip, and it is the part that makes the rest honest.
5. Minute all four, with the date you will review them.

A target of this kind is a judgement, not a calculation. Two charities of the same size and purpose can reasonably choose differently, and both minutes can be sound.

Scotland: OSCR’s advice to spread your income

OSCR is the only one of the three regulators whose guidance, in this guide’s sources, tells charities to spread their income. On reserves it reaches the Commission’s conclusion by a different route.

Its guidance frames a reserves policy as something to explain. It says the policy “will help explain to donors and funders why you are holding a particular level of reserves”. No reference to the Commission’s guidance; the same direction of travel.

OSCR also goes further than the Commission does on income mix itself. Its fundraising guidance sets this under the trustee duty to act with care and diligence. It says, verbatim: “Look for a range of funding sources – don’t put all your eggs in one basket.” That is the clearest regulator statement on income mix anywhere in this guide’s sources, and it is Scottish.

One more Scottish point, in the other direction. OSCR treats holding reserves you have no use for as a problem in itself. The charity may be unable to spend them on its purposes because the purposes are too narrow. If so, the route is to apply to OSCR to change the purposes.

Northern Ireland: CCNI’s reserves guidance, and what it leaves out

CCNI publishes its own reserves guidance, EGO63. It is a genuine parallel to the Commission’s, not a summary of it. It splits its advice the same way: a must where the accounts regulations impose a duty, a should where the point is good practice.

Two things in it matter here.

• Reporting is a legal duty. Every registered charity in Northern Ireland, including the smallest, must report on its reserves position in the trustees’ annual report. The duty comes from the accounts and reports regulations.
• The level is the charity’s call. CCNI takes the same line as the Commission: there is no consensus on what is appropriate. Charities of similar size and purpose may legitimately hold different amounts.

What EGO63 does not do is answer the income-mix question. It is a reserves guide. It touches income only to say which sources can build reserves at all — unrestricted income can, restricted grants cannot. The difference is set out in restricted, designated and endowment funds.

So the honest position for this step is the same everywhere. On income mix, none of the three nations has jurisdiction-specific legal content. It is general good practice, UK-wide, and this page treats it as such.

The deliverable: a minute, not a spreadsheet

The deliverable is a decision, not a model. One paragraph in the minutes naming the target, the reasoning and the review date does more than a forecast nobody revisits.

It also gives you the answer to the funder’s question. When an application asks how the charity is financially sustainable, the minute is what you are describing.

With the target minuted, you know how much new income you need and roughly where it should come from. The next step is to find funders that genuinely fit.

Common mistake: building reserves down to look needier to funders

It comes from a belief that high reserves cause rejection. Both the Commission and OSCR say the opposite: explain the reserves, do not shrink them. Running them down weakens the charity, is hard to justify to the board that set the policy, and does not reliably help the application.

Worked example

Saltmarsh Trust holds reserves it does not expect to need for several years. Its fundraiser wants to spend some of them before the next round of applications. The worry is that a healthy balance will read as “does not need the money”.

The board does the opposite. It leaves the balance alone and writes the explanation instead: what the reserves are held against, which part is designated, and against which named risk. That paragraph goes into the funder profile the charity keeps for applications.

The target it sets alongside it is modest and specific. The aim is to reduce the largest funder’s share by the end of the award. The difference is to come from one named second funder and from regular giving.

What makes it a decision rather than a hope is the last line of the minute. If the second funder says no, the project scales back rather than being underwritten from reserves.