What are reserves?
The term 'reserves' is applied to the part of the organisation's income that is freely available for its general purposes. This is income that becomes available to the organisation but which is not spent, committed, or designated (Northern Ireland Council for Voluntary Action, 2007).
Reserves are often used to further the aims of the objects of the organisation, including but not limited to purchasing new equipment, funding expansions, and covering unexpected costs.
Why have a reserves policy?
A reserves policy is not only good practice but a key to good financial governance. It provides assurance that the finances of the organisation are actively managed and its activities are sustainable. It is important to keep the money as a reserve if income drops or if a new opportunity arises.
Other common situations include:
- Funders use it when looking at funding requests
- Regulators use it when reviewing an organisation's resource usage
- It is useful to explain to others why you are setting money aside rather than using it
