Mark Salway suggests a risk based approach to reserves-Charity FInance March 2021

Wednesday, March 10, 2021 11:55 AM | Farah Mendlesohn (Administrator)

Mark Salway argues that charities should move away from the model of three to six months operational reserves and instead consider unrestricted reserves in terms of the following purposes:

Downturn in income--how much and for how long?

Increase in expenditure--what is the variance you might expect?

To invest for the future--in developing a new project, service or to buy an asset.

To meet one-off costs--where a known liability needs to be met, or for disallowed costs.

For cash flow.

A good reserves policy simply looks down each line and each risk, and sees what level of reserves is needed against each. 

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