Charity Reserves Policy Template

Reserves Policy: [Organisation name]

A reserves policy for a charity or nonprofit: what the organisation counts as reserves, why it holds them, the target level and how it was worked out from risks and plans, when reserves may be used and how they are rebuilt, and how the board monitors and reports them. It follows the approach of the Charity Commission for England and Wales guidance "Charity reserves: building resilience" (CC19, last updated 2026-09-16), with notes for US nonprofits. The example organisation, Brackenfold Reading Trust, is fictional and reports in USD. Replace every [bracketed] value and every row marked Example. This is a documentation format, not financial, accounting or legal advice: check the current official guidance and your auditor or independent examiner.

Document control

Approvals

Revision history

1. Purpose and principles

[Organisation name] holds reserves so that it can keep essential services running for the people it serves if income falls or costs rise unexpectedly, meet its commitments to staff, suppliers and funders, take up opportunities that fit its strategy, and, if closure ever became unavoidable, close in an orderly way. Reserves are not an end in themselves: amounts above the target range are spent on the charitable purposes under section 8.

2. Definitions

• Unrestricted funds: funds the board may spend on any of the organisation's purposes.
• Restricted funds: funds that may only be spent as the donor or funder specified. They are outside reserves, but they may reduce the need for reserves in some areas.
• Designated funds: unrestricted funds the board has set aside for a named future purpose.
• Free reserves: unrestricted funds minus tangible fixed assets used for the work, social investments, designated funds for essential future spending, and commitments not provided for as liabilities.
• Months of cover: free reserves divided by average monthly unrestricted expenditure in the approved budget.

3. Current reserves calculation

Example (Brackenfold Reading Trust, year-end YYYY-MM-DD): A 1,020,000; B 310,000 (owned learning centre); C 180,000 (designated for the reading van replacement, spend expected in YYYY); D 0; E 530,000; F 1,560,000, so 130,000 a month; G 530,000 / 130,000 = 4.1 months.

4. Why we hold reserves: risk-based assessment

The Brackenfold total need of 518,000 equals 4.0 months of budgeted unrestricted expenditure (518,000 / 130,000 = 3.98).

Also consider, where they apply: defined benefit pension deficits, guarantees given for subsidiaries, property repairs not yet designated, restricted funds that can absorb some risks, and access to borrowing as an alternative to holding cash.

5. Target range

The board sets free reserves at a target range of [lower amount] to [upper amount], equal to [x] to [y] months of budgeted unrestricted expenditure.

Example: Brackenfold sets the range at 3.5 to 4.5 months, which is 455,000 to 585,000 at the current budget, around the assessed need of 518,000. Free reserves of 530,000 (section 3) are inside the range.

6. Use of reserves

Every use is reported at the next finance committee and board meeting, with the reason, the amount and the effect on months of cover.

7. Rebuilding reserves

If free reserves fall below the lower limit, the chief executive presents a rebuild plan to the board within [two] months. The plan sets a budgeted unrestricted surplus, cost or income actions and a return date, normally within [three] years. Example: a shortfall of 60,000 is rebuilt with a budgeted surplus of 20,000 a year for three years.

8. Reserves above the target range

If free reserves are above the upper limit, the board decides within [six] months how to use the excess on the charitable purposes, for example by designating it for a named project with a timetable, and explains the decision in the annual report.

9. Monitoring and review

10. Reporting

Annual report statement (draft):

[Organisation name] holds free reserves to [reasons]. The trustees have set a target range of [range], equal to [x] to [y] months of unrestricted expenditure. At [year-end] free reserves were [amount] ([months] months), which is [within / below / above] the range. [Explain designations, the plan and timing.]

11. Jurisdiction notes

12. Related templates

• Annual budget for the unrestricted expenditure used in months of cover
• 13-week cash flow forecast for the working capital need in RES-R4
• Strategic plan for planned uses of reserves above the range
• Board governance calendar to schedule the annual review
• Impact report for the public financial summary

Glossary

• Free reserves: unrestricted funds freely available to spend (section 2).
• Months of cover: free reserves divided by monthly unrestricted expenditure.
• Designated fund: unrestricted money the board has set aside for a purpose; the board can undesignate it.
• Restricted fund: money that must be spent as the donor specified.
• SORP: Statement of Recommended Practice for charity accounts in the UK.

Standard and licence note

Based on the Charity Commission for England and Wales guidance CC19 "Charity reserves: building resilience" (last updated 2026-09-16, Open Government Licence v3.0), sections 3 and 4 (definition of reserves, items excluded, target informed by forecasts and risks, reporting in the annual report). The section text, risk-based method and fictional Brackenfold figures are original and are one possible method. Check the current guidance and your auditor before use. Template licence: MIT.