In a recent article, Third Sector magazine considers the charity sector’s approach to building and maintaining financial reserves (following the decision in the Kids Company High Court Trial and how this sits within charity law). In the article, Caron Bradshaw from Charity Finance Group shares the following, which could be useful for Trustees currently assessing their reserves levels:
The sector has developed a sort of ‘urban myth’ around the need to keep three to six months of reserves, which often fails to allow for the fact that reserves mean different things for different parts of the sector.
A narrative of ‘we have to keep three or six months reserves’ doesn’t reflect the actual risk, and identifying risk relative to a charity’s aims is really what we should be thinking about.
You can read the full Third Sector article here.