Back to basics: the importance of reserves

Tips from John O'Brien, chair of the Community Accounting Network

Most of us know it's not pleasant when the money runs out. As a student years ago, I could usually rely on dad to send me a tenner, but now, as the manager of a charitable company, I need another plan.

Every organisation should think about reserves. We need them for all sorts of reasons: the grant cheque might be late; our fundraising efforts might fail; we might need a new minibus; we might need to make everyone redundant; we might even have nasty contractual obligations to repair the roof.

Think about what you need. Many small groups find that about three months' running costs is a good place to start. No one will give you a definite figure. It depends on your circumstances, but don't forget that funders are often interested in reserves. If you seem too wealthy, you might not get the grant.

Once you have a target, you need to review the reserves regularly. If you have too much, why not use it to do more good things? If too little, you need to work out how you will accumulate some reserves. This usually means securing income that is not restricted for specific purposes, and managing your expenditure. At CA Plus, we started out with £40 in a petty cash tin. We built up our reserves to the three-month level and have maintained this ever since. I'm pleased to report that I don't have to call my dad any more.

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