Should charities rethink their reserves strategy?

A new publication on the strategic management of charity reserves, by Charity Finance Group (CFG), ACEVO, the Institute of Fundraising (IoF) and Sayer Vincent, has been launched today. Beyond Reserves challenges charity trustees and managers to question whether they are using reserves effectively – or if they could be made to work harder for the charity and its beneficiaries.  

Managing charity reserves has traditionally been viewed as the preserve of the finance team; however, it impacts on all parts of the organisation.  Beyond Reserves is a collaborative effort between the four organisations to reflect this wider group of stakeholders and includes insights and case studies from chief executives, finance and fundraising directors from a range of organisations. 

Caron Bradshaw, CEO, CFG, commented: “Traditionally reserves have tended to be viewed as being for a ‘rainy day’. It's been a really tough economic climate for the past few years and this has prompted many finance professionals to challenge these traditional views as they've encountered reluctance to spend reserves or confusion on how best to use them.  

“CFG encourages senior managers and trustee boards to question how they can be more dynamic in their approach to managing reserves. We believe this publication will help discussions around reserves move away from ‘have we got enough for x months’ operating or to wind up?’ to the much more effective ‘are we using these in the best way possible?’”

Peter Lewis, CEO, IoF, commented:  “Reserves are a crucial part of any charity’s make up and we hope that this publication will enable fundraisers to gain a wider understanding of the role reserves play in supporting the generation of strategic funds.”

Sir Stephen Bubb, CEO, ACEVO, commented:  “In these challenging times, it is important that organisations are making effective use of all their resources. This publication will support our members to understand the strategic importance of reserves and how reserves can be managed to support charitable activities and delivery of services”.

Kate Sayer, Partner, Sayer Vincent, commented:  “It is important for charities to have a strategic approach to their reserves, rather than holding on to funds for a rainy day.  Charities must move beyond this thinking and look at all the ways in which they can manage risks, with financial reserves as a last resort. ”

 

Comments
memyself-eye's picture

Yes but....

memyself-eye | | Permalink

Charities have to be ultra cautious with their reserves precisely because for many their incomes are so volatile - most are lucky to have any reserves and the best they can hope for these days is a deposit account paying less than 2% or so (usually on 7 days notice for when the grant funding suddenly ceases). To talk about 'managing risk' and 'supporting charitable activities' is meaningless unless these people want charities to start investing in (say) dividend yielding shares instead - and yes I know some do - but no trustee that I know would want to explain to their funders staff and fellow trustees how their bright idea to "generate strategic funds" (eh?) by putting their reserves all on the Facebook IPO went wrong.

We trustees don't need to be hectored by ECEVO, thanks.

Also

reilloc | | Permalink

I have to agree with memyself-eye to a large extent. Having been a trustee of various relatively small charities for many years, there is no way any of them would want to risk reserves by investing directly on the stock market or in any other vehicle that at the very least doesn't risk the capital.

For the small charities I have been involved with, there are many things that they do to minimise risk to their income streams but ultimately they are subject to forseeable but not mitigatable risks. For example a Scout Campsite cannot do much to stop a down turn in business caused by being in a foot and mouth no go zone or by a fire forcing closure of some or all of the site. Yes some such events can be insured against but this is at high cost and questionable value for money. Again an example is my old school's annual fete where the cost of rain insurance and the terms on which it is available mean that only two occasions in the last 50 years would any payment have been received with premiums being of the order of 10% of the income generated!

On the other hand, the Scout Group I am involved in is sitting on some £75K of reserves, mainly in a fund to pay for rebuilding their hall. The hall was built in the late 60s overseen by the then group scout leader, who was a civil engineer in his day job. The hall was built to very high specification and although it had a design life of 50 years is unlikely to need replacing for many decades to come, as long as it is maintained properly. The latter is the issue where there are a few trustees who don't think we should dip into the reserves to make sure that the proper maintenance is done! Indeed they don't really think that excess income should be spent on maintenance until the annual contribution to the rebuilding fund is made.

Personally, I think that the "rebuilding fund" should only have enough money in it to pay for the project start-up costs of a building replacement (ie architects drawings and the like). The rest should be spent on (i) maintenance and Improvement and (ii) charitable activities. It is a lot easier to raise funds for immediate activities (whether those are costs of running the group or rebuilding the hall) than to put into a fund for work in 50 years time! And I wonder what those who donate money think it is being spent on.

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