Core tool
Charity Reserves
how much to hold, and why
what it is
How much to hold, and why
Reserves are the part of your unrestricted funds that's freely available to spend on any of your purposes — your rainy-day fund, or shock absorbers. Charities exist to spend, but holding some funds back protects your services when things go wrong. There's no single right level: the job is to set a policy that fits your own risks, and to explain it clearly. This is the short version of the full Embrace Finance deck.
Reserves are that part of a charity's unrestricted funds that is freely available to spend on any of the charity's purposes. The right level is largely a matter of judgement — your job is to reason it from your own risks, and be transparent about it.
why a policy
You have to state it
A reserves policy isn't optional — your Trustees' Annual Report must set out three things. Charity Commission guidance CC19 and the Charities SORP are the references to bookmark.
How much you need
How much you have
How to get from A to B
step one
Work out how much you have
Reserves aren't simply your bank balance. Start from your unrestricted funds and strip out what isn't freely available. It's a technical job — sometimes one for your accountant.
A word on designated funds
step two
Decide how much you need
Happily, this part is judgement, not arithmetic. Reason it from your own risks — and beware the myths.
The myths to drop
"We'll copy someone else's example policy." Their risks aren't yours.
Set a range, not a number
Common reasons to hold reserves (CC19)
An unforeseen emergency or unexpected need; covering unforeseen day-to-day costs; a source of income not being renewed; planned commitments future income alone can't meet; funding a short-term deficit in a cash budget.
Account for funders
Reserve levels are politicised, and some funders cap them in their eligibility rules. No single policy will satisfy everyone — so set the right one for you, and explain your reasoning clearly.
building them
There is no white rabbit
Reserves only come from one place: generating unrestricted income and holding on to unrestricted surpluses, year after year.
Budget for each activity
On a full cost recovery basis, so nothing runs at a hidden loss.
Diversify income
Spread the risk across a manageable range of purpose-aligned sources.
Generate unrestricted surpluses
The only fuel for building reserves.
Hold a reserves policy, and build to it
Then maintain it — half looking forward, half looking back, with a culture of curiosity and courage.
When you can't build reserves yet, build resilience instead: keep costs flexible, cost in inflation, hold a contingency, and manage risk well.
resilience
Why this matters
A resilient organisation is Protected — it plans for the financial ups and downs and stays on top of the risks. Reserves are how you take care of those risks: held deliberately, sized to your situation, and explained with confidence. They're the 'prepare' in anticipate · prepare · respond · adapt.
A note
This is a plain-language summary, not professional advice. UK charity reserves guidance (CC19, the Charities SORP) changes — check the current guidance, and get qualified advice for your own situation.