The expected timing and cash flows of the organisation will determine the amount needed to be held in cash. This means the amount of money that needs to be in the bank account for an organisation to be able to pay its bills on time and not run out of cash. The starting point is to consider working capital. The best way to consider reserves is to break the amount required to be held into constituent parts which then help an organisation to build and create a reserves figure pertinent and relevant to them and their risks. How should boards approach the setting of a reserves policy? What factors should they consider? In order to have an effective reserves balance in this regard, it is important to have a clear reserves policy that the Board can understand and review. So there needs to be a balance between holding funds in reserves and spending. However hoarding funds for peace of mind is not a good use of reserves which could be applied and used by the charity to deliver its charitable objectives, implement future strategy, invest in equipment, infrastructure or in new activities. This reduces the risk on the sustainability of the organisation as it can survive a loss of income more easily.
