When charity reserves run low

With a drop in income from fundraising and trading, and increasing demands for services, many charities are having to consider using their reserves to allow them to continue providing services to their beneficiaries, in accordance with the Charity Commission’s coronavirus guidance.

Despite considerable guidance from the Charity Commission on reserves and reserves policies in the past,  there has often been a degree of confusion amongst charity trustees over:

• What constitutes reserves
• What level of reserves should be maintained
• What should be done if the levels of reserves specified in a reserves policy is not met, in that a charity’s reserves are too large or, much more likely at the current time, too low

A review carried out by BDO last year showed that the level of reserves before the pandemic at the largest 50 charities had fallen since 2017, with charities included in the review holding an average of two month’s free reserves.

So it may well be the case that many charities facing financial difficulties no longer have significant reserves on which to fall back.