Small animal charities across the UK do vital work, rescuing, rehabilitating, rehoming, and advocating for animals of all kinds and at The Belforte Foundation, we want them all to be as strong as possible. Our grants support as many of these organisations as we can, as we believe that the best way to give animals a voice is to back charities that are strong, sustainable, and resilient. One key component of that resilience is having an appropriate level of financial reserves.
In this blog, we explain what the Charity Commission recommends, why reserves are important, the risks of holding too much or too little in reserve, and why every charity should adopt a robust reserves policy.
Reserves – What the Charity Commission Recommends
The Charity Commission expects all registered charities to develop and maintain a reserves policy, setting out how much they hold, why they hold it, and under what circumstances it might be spent (Charities and Reserves: CC19, gov.uk).
Interestingly, there is no universal figure suitable for all charities, so each organisation must decide what is right for its size, risks, and funding model. However, most sector guidance suggests that holding between three and nine months’ expenditure is reasonable for most charities. This doesn’t mean that more is necessarily bad, but we would never recommend going less than this.
Some charities may not be aware, but there is an upper limit. The Charity Commission notes that charities should not normally hold more than two years’ worth of unrestricted expenditure in reserves, unless they can clearly justify why that level is necessary. Justification could be something like planned future expenditure such as a building like a new hospital which is in the pipeline, or planned/forecast future income reductions – but these must be tangible, for example, the last few years you had big legacies that you were expecting, and the coming year you do not know of any pipeline legacies, so your reserves will become proportionate to your income again. This benchmark set by the Charity Commission helps ensure charities balance financial prudence with active delivery of their charitable purposes.
Why Reserves Matter
Reserves are an essential financial safety net for any charity – big or small. They represent unrestricted funds, so money not tied to specific projects or grants and typically ‘liquid assets’ that can be drawn upon if income falls, costs rise, or unexpected events occur.
For small animal charities, this flexibility can be lifesaving, but likewise, we know that it’s often hard to build a solid reserve base as costs escalate and fundraising remains an ongoing challenge. But, imagine a sudden rise in veterinary bills or a major donor unexpectedly withdrawing support. Without reserves, a charity might be forced to suspend rehoming, turn away animals, or even close – and whilst this sounds worrying, the unfortunate reality is this can and does happen.
Reserves give Trustees the breathing space to manage through financial turbulence, make considered decisions, and protect continuity of care. They also demonstrate good stewardship which reassures funders, donors, and regulators that the charity is responsibly managed and financially secure. At The Belforte Foundation one of our due diligence steps is reviewing charity reserves.
The Risks of Too Little Reserves or Too Much in Reserve
Too Little:
If a charity has insufficient reserves:
- It becomes vulnerable to sudden funding shocks or cost increases.
- Core services may be disrupted.
- Trustees could face difficult decisions around redundancy or closure.
The Charity Commission warns that charities with very low reserves are at increased risk of insolvency and should seek early advice.
Too Much:
On the other side, whilst a nice problem to have, holding too much in reserve can create reputational and ethical problems. Donors and the public may question why funds are not being used to benefit animals now, and funders are very unlikely to give grants. The reason for this is simple – if a charity is asking The Belforte Foundation for £9,000 for an urgent new animal ambulance, but has over two years reserves (without the above mentioned justification), then our immediate question would be: If it is urgent, and you have the money, why haven’t you purchased it already? At The Belforte Foundation we will not fund charities with what we deem excess reserves (unless justifiable).
If a charity holds over two years’ expenditure in reserves without clear justification, the Charity Commission and sector bodies may expect an explanation.
Additionally, money sitting idle loses value in real terms through inflation, and may represent missed opportunities to improve animal welfare, plus most business/charity accounts do not pay interest.
Why Every Charity Needs a Robust Reserves Policy
A well-designed reserves policy is far more than a compliance exercise, it is essential for good governance. This is because it ensures a variety of things, including:
- Clarity and Transparency: Trustees must clearly communicate the purpose and level of reserves, promoting trust with funders and the public.
- Strategic Planning: A defined target helps guide financial decisions and align resources with the priorities of a charity.
- Risk Management: The policy should link directly to the charity’s risk register and business continuity planning. Small charities tend to be a lot lighter on policies than the bigger well funded organisations, but policies don’t always have to be hundreds of pages long – they just need to be clear and robust.
- Regular Review: Reserves should be reviewed annually and adjusted to reflect changing conditions or risks. Your accountant should ask about this and the Trustees should discuss this annually.
- Accountability: Publishing the reserves policy in the annual report ensures openness and builds credibility.
At The Belforte Foundation, we believe that strong foundations lead to stronger outcomes for animals. For the small animal charities we support, resilience and sustainability are key. Reserves play a vital role in both.
For any charity seeking our support, or indeed that of any funder, a clear, transparent reserves policy is a sign of strength and of long-term commitment to animal welfare.
If you have any questions or need advice please feel free to contact us. We know that animals take priority to ‘savings’ but look at reserves a bit like a saving enough each month to pay your mortgage – if you don’t, you can end up with no roof over your head. In charity terms, this means you can end up with a much worse situation where you can’t help the animals we all care so much about at all.