Thought leadership: Social Purpose and Non Profits

Better Reserves Management

Understanding your resources to safeguard your future.

Tough economic times are forcing charities to look hard at their reserves policy; with a particular focus on when and how they might need to draw down on reserves.

It’s a world in which priorities need to be constantly reassessed, and the environment requires careful thinking about appropriate levels of reserves. This needs to be based on knowledge, which is not just as accurate as possible, but which incorporates analysis from different perspectives.

Charities must make a genuine attempt to formulate a reserves policy and understand how this will be impacted in the short and medium term.

Our Better Reserves Management guide outlines key considerations for developing your policy including advice on how to determine the level of reserves required, the reporting requirements, what to do if you must use your reserves, and more.

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'Charity reserves: building resilience (CC19)' definitions

Income and income funds

Unrestricted funds (including designated funds)

Income or income funds which can be spent at the discretion of the trustees in furtherance of any of the charity’s objects. If part of an unrestricted income fund is earmarked for a particular project it may be designated as a separate fund, but the designation is administrative only, and does not legally restrict the trustees’ discretion to spend the fund.

Designated funds

Part of the unrestricted funds which trustees have earmarked for a particular project or use, without restricting or committing the funds legally. The designation may be cancelled by the trustees if they later decide that the charity should not proceed or continue with the use or project for which the funds were designated.

Restricted funds

Funds subject to specific trusts, which may be declared by the donor(s) or with their authority (eg in a public appeal) or created through legal process, but still within the wider objects of the charity. Restricted funds may be restricted income funds, which are spent at the discretion of the trustees in furtherance of some particular aspect(s) of the objects of the charity, or they may be endowment funds, where the assets are required to be invested, or retained for actual use, rather than spent.

Endowment funds

Funds which the trustees are legally required to invest or to keep and use for the charity’s purposes. Endowment may be expendable or permanent.

Expendable endowment

An endowment fund where the trustees have the power to convert the property (ie land, buildings, investments or cash) into ‘income’. It is distinguishable from ‘income’ by the absence of a positive duty on the part of the trustees to apply it for the purposes of the charity, unless and until this power to convert into ‘income’ is actually exercised.

Permanent endowment

Put simply, permanent endowment is property that your charity must keep rather than spend.

There are two main types of permanent endowment:

money or other assets given to your charity for investment. Only the investment income can be spent
property given to your charity which must be used only for a particular purpose. For example, land or buildings given for use as a school or recreation ground.

Better Reserves Management

Tough economic times are forcing charities to look hard at their reserves policy; with a particular focus on when and how they might need to draw down on reserves.

'Charity reserves: building resilience (CC19)' definitions

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