Finance strategy and reserves policies

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Your finance strategy is a plan of how you will finance your organisation and its activities, what money you will need and where it will come from. Your strategy should describe how you intend to move from your current position to your intended position.

Questions to answer when developing a finance strategy

Consider the following questions when developing a finance strategy:

• where are we now?
• what are our plans for the future?
• how will we get there?
• do we know what the risks are and how we will manage these?
• how will we manage the competing demands of spending against savings needed?

You can use this checklist to develop your finance strategy. The 'how will we get there?' question of your finance strategy is its central plank; it is about generating the income you will need to finance your strategy.

Source: Published with permission from Cass Centre for Charity Effectiveness. This material is taken from "Tools for Success: doing the right things and doing them right", published in October 2008. Download or buy your copy from Cass Centre for Charity Effectiveness.

The purpose of financial reserves

Why is it important to have reserves rather than spend the money? Firstly, for working capital ie money in the bank to pay for goods and services up front. Secondly, to meet unexpected spending requirements perhaps because income has fallen short of plans or been delayed or project costs have gone over budget.

Funders want to see that a charity has enough reserves to be financially robust but also that it is not sitting on unspent funds without good reason. Meanwhile, for similar reasons, the Charity Commission describes the level of reserves as ‘a key issue’ for the regulator.

Developing a reserves policy

The trustees need to agree a reserves policy which should cover as a minimum:

• the reasons why the charity needs reserves
• what level (or range) of reserves the trustees believe the charity needs
• what steps the charity is going to take to establish or maintain reserves at the agreed level (or range)
• arrangements for monitoring and reviewing the policy.

Useful links

• Reserves policies made simple - PDF guide from Sayer Vincent
• CC19 guide to reserves - Charity Commission

• Finance strategy - top tips to help you survive and prosper from Professor Paul Palmer of the Cass Business School, London.
• When to invest your reserves (Knowledge Peers) - video of Save the Children's fundraising director
• Help with preparing charity accounts and reports - Charity Commission - includes information for charities with turnover of £250,000 or less, £500,000 or less and over £500,000.
• Finance Hub -  making sense of finance and funding in the Third Sector.

Have your say

In your last strategic planning cycle, what were the discussions about finance and resources? Do you have a risk statement in your annual accounts?

Ask questions and have your say on the Budgets and finance forum.