According to analysis carried out by Third Sector, the UK’s most prominent charities retain, on average, around four months’ worth of expenditure in reserves.
Third Sector’s examination of the accounts of the 157 charities that make up its Charity Brand Index of the ‘best-known’ charities in the sector, revealed that the average amount of money held in reserve was £23.3 million.
The total amount of money held in reserve by all charities included in the analysis was £3.7 billion.
The accounts reviewed were those most recently published on either the Companies House website, the Charity Commission’s website or on the charities’ own websites, before 1 December.
Andrew O’Brien, director of policy and engagement at the Charity Finance Group, said: “This data provides a valuable perspective on the financial position of the largest charities. There is no ‘correct’ level of reserves for the sector, but our engagement with members indicates that levels of reserves have fallen over recent years.”
O’Brien suggests that this decline in reserves could be the result of charities freeing up resources through better financial management, or else the consequence of cuts to public funding as charities invest more in the provision of services.
Toni Hunter, partner and charities expert at George Hay, said: “Trustees have an obligation to manage their charity in the best interests of the charity and its beneficiaries. This involves managing the charity’s income and running costs, being transparent about their plans and appropriately identifying any potential risks.”
“When it comes to the trustees that we’ve worked with over the years, a reserves policy tends to come out as a key concern of theirs – in particular whether it will be deemed appropriate in the eyes of the commission – and something they often look to us for guidance on.
“It’s worth bearing in mind though that charities may not always fair best by aiming for the ‘sector standard’. Each charity should take into consideration its own business model when making decisions about the level of reserves it requires.
“Aside from this, the charity sector could certainly do more to educate the public on the role that reserves policies play when it comes to the governance of charities.
“Charities should be able to have confidence in their decisions and, as a result, run their organisations with conviction and certainty.”
Here at George Hay, we understand that competition for funding has become stronger than ever. To respond to this, not-for-profit organisations are having to take a long, hard look at the plans and strategies they currently have in place.
Our specialists can help you to fulfil your charity’s specific financial objectives, whatever your circumstances, priorities and requirements. We work with you to understand your needs and help you to manage your enterprise more effectively.
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