The collapse of the Kids Company charity – and in particular the issues relating to cash reserves – has served as a wakeup call for many charities.
Setting the correct level of your charity’s reserves is a key part of good financial management and planning.
However, getting it right can be a tricky balancing act – set your reserve levels too high and you may limit the funds you have available to run your charitable activities.
Set them too low and you could jeopardise your ability to operate in the future if you face unexpected expenditure.
Questions to consider:
- How much working capital does our charity need to operate?
- Are there specific spending peaks and troughs that we need to plan for?
- What level of reserves do we sensibly need?
- What about assets that are not liquid? Could their value fluctuate downwards?
- Has our charity committed itself to future projects that we need to budget for?
It’s important to bear in mind that the balance of your reserves and the reason why you have set these levels, will need to be properly accounted for in your charity’s annual report.
Set your reserves at the correct level and your charity will run smoothly. Get it wrong and the result may prove costly or – as was seen in the case of Kids Company – could ultimately jeopardise the very existence of your organisation.
Moore Thompson’s charity team has experience in helping charities with their accountancy, audit and tax requirements and can help you to operate as efficiently and cost-effectively as possible.
Our expertise allows us to work directly with trustees to identify any potential cash flow issues before they impact on the day to day running of your organisation.
To find out how we can help put in place a robust financial plan which will help your charity to realise its goals, please contact us today.