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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