It could lead to financial instability

Findings show more than one in four charities (26%) have not reviewed their reserves policy within the last year, according to a new survey.

Audit, tax and consulting firm RSM UK said charities are leaving themselves at risk of failing to manage financial instability - which is particularly risky in the current economic climate.

While the data found over a third (34%) of charity trustees had reviewed their reserves policy within the last three months and 40% within the last year, 11% of respondents had only reviewed it within the last two years, 6% within the last five years and 9% hadn’t reviewed it at all. 

Reserves show the financial strength of a charity; reflecting not just the amount of money in the bank, but also the unrestricted funds that are freely available to spend on activities, after accounting for fixed assets and future spending plans.

Nick Sladden, partner and head of charities at RSM UK, said: “It’s concerning to see it’s been over a year since a quarter of the charities surveyed have reviewed their reserves policy.

"While a large proportion of trustees are on top of their charity’s reserves, it’s clear some are falling behind.

“Given the current economic and political climate, and with additional financial pressures set to hit the sector from April 2025, it’s crucial policies are robust enough able to withstand the additional strain.

“This will allow charities to remain flexible and adaptable during periods of uncertainty.

“Reserves policies must be linked to strategic objectives; monitoring them regularly will determine whether they still align with key plans, identify any shortfalls or the need for alterations.

“A solid reserves policy sends a clear message to funders and beneficiaries that the charity is well managed and run, ultimately bolstering the business case for investment.”