EDITORIAL: Reserves are not essential to your revenue stream

Mathew Little

A couple of years ago, proceedings at the annual charity accountants conference might not have impinged upon the consciousness of many of those outside the finance director's office.

But following the stock market meltdown and one of the biggest financial crises in the recent history of charities, the debates at the Directory of Social Change's event in Manchester this week have moved centre stage.

And, as the bear market abates, allowing charities to recover their balance and take stock, traditional certainties are beginning to be reappraised.

Joe Saxton, 'driver of ideas' at voluntary sector think tank nfpSynergy, will use his keynote speech to ask whether charities need reserves at all (see finance, p9).

Unpopular with donors and subject to Charity Commission scrutiny in the buoyant investment conditions of the late 1990s, the high levels of reserves of many charities have melted like snow when they actually came to need them. Redundancies and cutbacks have resulted.

Saxton argues that the security they offer is illusory, and the reaction of many charities that feel they need larger reserves misses the point.

A far better use of resources is to invest them in fundraising to produce a reliable income.

Organisations like Oxfam and Friends of the Earth operate with minimal reserves, so why can't others? The commercial sector has never relied on reserves.

Certainly, there is evidence that the traditional assumptions behind reserves policies are cracking. NSPCC's decision to sell its equity stake and move into cash and bonds as a way of guaranteeing funds in the wake of a sudden decline in income, shows a new way of thinking.

Whether charities, especially those with long-term projects, will eschew reserves altogether is doubtful. But certainly, after the deluge of the past couple of years, the unthinkable is being thought.

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