# 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.

<!--
Guidance: How to use this template
- Work in this order: calculate the current free reserves (section 3),
  list the reasons to hold reserves and cost each one (section 4), set
  a target range (section 5), then write the use and rebuild rules
  (sections 6 and 7).
- CC19 says there is no single level or range of reserves that is right
  for every charity. A target such as "three months of costs" is only
  credible if section 4 shows why.
- Tailor the wording: CC19 asks that the published policy is not a
  standard form of words, and that it explains what reserves are kept
  (or not kept) for and when they are to be used.
- Common pitfall: counting restricted funds, fixed assets used for the
  work, or designated funds as "reserves". They are not free to spend.
-->

## Document control

<!-- Guidance: The board (trustees) owns the policy; the finance committee usually proposes it. Record the accounts year the figures come from. -->

| Field | Value |
|---|---|
| Document ID | [FIN-POL-RES] |
| Organisation | [Legal name, registration number] |
| Version | [1.0] |
| Status | [Draft / Approved / Under review] |
| Owner | [@treasurer] |
| Proposed by | [Finance and audit committee] |
| Approved by | [Board of trustees / directors] |
| Figures based on | [Accounts or management accounts as at YYYY-MM-DD] |
| Last updated | YYYY-MM-DD |
| Next review | YYYY-MM-DD (at least annually, with the budget) |
| Classification | [Public] |

### Approvals

| Role | Name | Date |
|---|---|---|
| Treasurer | [Name] | YYYY-MM-DD |
| Chair of the board | [Name] | YYYY-MM-DD |

### Revision history

| Version | Date | Author | Change |
|---|---|---|---|
| 1.0 | YYYY-MM-DD | [@treasurer] | Policy approved |
| 1.1 *(Example)* | YYYY-MM-DD | [@treasurer] | Target recalculated after the new lease |

## 1. Purpose and principles

<!-- Guidance: Say in two or three sentences why the organisation holds reserves at all. Link them to beneficiaries, not to the balance sheet. -->

[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

<!-- Guidance: CC19 section 3.1 defines reserves as the part of unrestricted funds freely available to spend on any purpose. Use the same definition so your annual report and accounts agree. -->

- **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

<!-- Guidance: Start from the balance sheet. Show each deduction so a reader can follow the arithmetic, and use the same year-end as the accounts. If you prepare group accounts, include the net assets of subsidiaries. -->

| Line | Item | Amount |
|---|---|---|
| A | Total unrestricted funds | [Amount] |
| B | Less tangible fixed assets used for the work | [Amount] |
| C | Less designated funds | [Amount] |
| D | Less social investments and unprovided commitments | [Amount] |
| E | **Free reserves (A - B - C - D)** | [Amount] |
| F | Budgeted unrestricted expenditure for next year | [Amount] |
| G | Months of cover (E / (F / 12)) | [Months] |

*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

<!-- Guidance: CC19 asks the target to be informed by income and spending forecasts, the reliability of each income source, future needs and commitments, and the likelihood of a shortfall. List each reason, how you costed it, and the evidence. -->

| ID | Reason | Basis of amount | Amount |
|---|---|---|---|
| RES-R1 | [Loss or delay of a major income source] | [Calculation] | [Amount] |
| RES-R1 *(Example)* | Largest unrestricted funder (400,000 a year) withdraws without notice | Three months to replace or cut costs: 400,000 / 12 x 3 | 100,000 |
| RES-R2 *(Example)* | Orderly wind-down of a programme or the organisation | Contractual notice and redundancy costs plus lease exit, from the closure costing | 210,000 |
| RES-R3 *(Example)* | Unbudgeted cost increases | 5% of unrestricted expenditure: 0.05 x 1,560,000 | 78,000 |
| RES-R4 *(Example)* | Working capital: grants paid in arrears | One month of unrestricted spend | 130,000 |
| | **Total need** *(Example)* | | **518,000** |

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

<!-- Guidance: Express the target as a range, and as money and months. Explain how the range relates to the total need in section 4. -->

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.

```mermaid
flowchart LR
    A["Free reserves calculated each quarter"] --> B{"Compared with target range"}
    B -->|"Below lower limit"| C["Rebuild plan, section 7"]
    B -->|"Within range"| D["No action, report to board"]
    B -->|"Above upper limit"| E["Spending plan, section 8"]
```

## 6. Use of reserves

<!-- Guidance: Name who may authorise use, for which reasons and up to what amount. Tie the reasons to the IDs in section 4 so use is traceable. -->

| Situation | Authority | Limit |
|---|---|---|
| Event covered by RES-R1 to RES-R4 | [Chief executive with treasurer] | Up to [10%] of free reserves |
| Larger draw, or a reason not in section 4 | [Board] | Any amount, minuted with reasons |
| Planned investment in strategy (one-off) | [Board] | Only from amounts above the upper limit |

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

<!-- Guidance: Say how and how fast reserves return to range. A rebuild that depends on a surplus nobody has budgeted is not a plan. -->

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

<!-- Guidance: Explain what happens to excess reserves. Holding substantial unspent funds without explanation is a reputational risk that CC19 names. -->

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

<!-- Guidance: Monitor reserves during the year as part of budgeting, not only at the year-end. Review the policy at least annually, which CC19 recommends, alongside strategic and budget planning. -->

| Activity | Who | When |
|---|---|---|
| Free reserves and months of cover in management accounts | [Finance lead] | [Quarterly] |
| Reserves position against target | [Finance and audit committee] | [Each meeting] |
| Full review of reasons, amounts and target | [Board] | [Annually, with the budget] |
| Reserves statement in annual report | [Treasurer] | [Each year-end] |

## 10. Reporting

<!-- Guidance: Write the public statement for the annual report here so it matches the policy. CC19 says all charities must include their reserves policy, the level held and why, in the annual report. -->

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

<!-- Guidance: Keep only the rows that apply. Figures and thresholds change; check the official page before each review. -->

| Jurisdiction | Pointer (checked 2026-10-30) | What to check |
|---|---|---|
| England and Wales | Charity Commission CC19 "Charity reserves: building resilience", last updated 2026-09-16 (https://www.gov.uk/government/publications/charities-and-reserves-cc19) | Reserves statement in the trustees' annual report; Charities SORP 2026 for financial years starting on or after 2026-01-01 |
| United States | No federal reserves rule; Form 990 reports the balance sheet and net assets (https://www.irs.gov/instructions/i990) | US GAAP liquidity and availability disclosures (FASB ASC 958) with your auditor; funder and state rules |
| Other | National charity regulator and accounting framework | Any required reserves statement |

## 12. Related templates

<!-- Guidance: Link the plans that feed and use the reserves target. -->

- [Annual budget](../finance/annual-budget.md) for the unrestricted expenditure used in months of cover
- [13-week cash flow forecast](../finance/13-week-cash-flow-forecast.md) for the working capital need in RES-R4
- [Strategic plan](./strategic-plan.md) for planned uses of reserves above the range
- [Board governance calendar](./board-governance-calendar.md) to schedule the annual review
- [Impact report](./impact-report.md) 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.