Is it time to use some of your reserves?

Every charity must have a reserves policy, which states the level of unrestricted reserves a charity has in place and the reasons why they are holding these funds in reserve. The policy tends to reserve sufficient funds to cover the operating costs of the organisation for a specific number of months, were there to be a drop in income.

With COVID-19 continuing to impact on charities operating activities, it may be time to look at your reserves policy and consider using some of your reserves. After all, the unrestricted reserves are there to assist during challenging times which COVID-19 has certainly delivered.

It is also worth considering whether there is scope to utilise your charity’s designated funds. Designated funds are unrestricted funds earmarked for a set purpose, but, unlike restricted funds, the charity chooses their purpose. This gives the charity the flexibility to use them for another purpose, if required. When considering using designated funds, it is important to factor in whether the need to cover other costs is more urgent than the costs that the funds are held for. For example, the designated funds may be held for specific, non-urgent repairs, however the funds may now be better served covering current costs, such as wages.

Even if COVID-19 has not immediately impacted on your charity, it may be prudent to put aside some unrestricted funds into a designated COVID-19 fund to cover expenditure required in the near future.

In summary, your charity should look over its current reserves policy to see if it is still adequate or requires adapting to cope with the current COVID-19 situation.

If you would like to discuss your charity’s business needs, or any issues affecting your charity, please contact a member of our EQ Charities team via charities@eqaccountants.co.uk or contact one of our offices.