Three months of expenditure can sound reassuring in a board paper. The harder question comes when trustees ask what those three months would actually cover: a delayed grant, a contract ending, or the cost of keeping a service running while you find new funding.
How much your charity should hold in reserves depends on those decisions. You need a target you can explain, a consistent calculation of what you hold, and a way to see when the position changes. Each has a different job in your reserves policy.
How Many Months of Reserves Should a Charity Hold?
The Charity Commission’s CC19 guidance for England and Wales sets no universal level or range. A months-based target can still be useful, provided the period and expenditure figure reflect the risks you’re covering.
When a spending multiple helps
If your policy uses three to six months, explain why your charity needs that period and which costs sit behind it. Scotland’s charity regulator, OSCR, explicitly recognises weeks or months of expenditure as one possible approach to setting reserves.
Compare a charity whose main contract needs renewal next quarter with one that has several confirmed funding agreements. Similar annual spending doesn’t mean the same exposure. Your target should account for the time available to respond and the costs you can change during that time.
When the target needs another look
A salary increase can raise a spending-based target. That’s reasonable if it now costs more to maintain the services the reserve protects. The weakness comes when nobody checks whether the old assumptions still hold.
Record the renewal dates, notice periods, and essential costs behind the figure. That gives trustees something specific to challenge when the budget changes. A funding agreement that ends sooner than expected deserves a review even if total expenditure hasn’t moved.
What Counts as Free Reserves?
Your bank balance, total unrestricted funds, and free reserves answer different questions. Establish which figure your policy measures before deciding whether you’re above or below target.
Start with unrestricted funds
CC19 defines reserves as unrestricted funds freely available for the charity’s purposes. Restricted funds sit outside that starting point. From unrestricted funds, exclude the amounts tied up in operational tangible fixed assets, social investments, designated funds for essential future spending, and commitments not already recognised as liabilities.
Check each adjustment against the starting balance. An asset funded from restricted income shouldn’t also reduce unrestricted reserves. A commitment already reflected in a liability or an excluded designated fund shouldn’t come off twice. Our guide to restricted and unrestricted fund accounting explains the distinctions behind those records.
Keep cash availability in view
A free-reserves figure doesn’t tell you when cash will reach the bank. Debtors and investments can form part of the resources behind it. Equally, cash in your bank account can belong to a restricted project.
Suppose a charity has £300,000 in unrestricted funds, including £120,000 tied up in operational fixed assets and £50,000 designated for essential work. A separate £10,000 commitment hasn’t been recognised as a liability. Assuming no overlap or other adjustments, free reserves are £120,000: £300,000 minus £120,000, £50,000, and £10,000. This is an illustration; the cash forecast still needs a separate check.
How to Set a Charity Reserves Target
Work through the situations that would require you to draw on reserves. OSCR’s guidance covers funding uncertainty, unexpected spending, planned commitments, and short-term cash deficits. Use your own forecasts to put amounts and dates against the relevant risks.
The income you could lose or receive late
Start with funding whose loss would force you to reduce or stop a service. Check the renewal date, payment schedule, notice period, and realistic replacement time. A late payment creates a different funding gap from a contract ending permanently.
For the illustrative charity above, a lost contract might leave £30,000 a month of essential expenditure after other income and achievable savings. Four months to replace the funding would create a £120,000 gap. That gives you an amount to test against your existing target, with assumptions trustees can question.
The costs you would still have to meet
Payroll, premises, insurance, and service contracts can continue after funding stops. Check when each cost can actually fall. A planned reduction in staffing won’t save the full salary bill immediately if notice periods still run.
Include unexpected costs that your charity has good reason to plan for, such as an urgent building repair. Explain which risks could happen together. Otherwise, a series of individually reasonable allowances can produce a target that assumes every problem arrives at once.
The cost of closing a service safely
NCVO’s closure guidance identifies continuing salaries and premises costs alongside one-off expenses such as redundancy, legal support, contract termination, and a final audit. Include the arrangements needed to transfer or end support for beneficiaries.
Suppose closure after that charity’s four-month recovery attempt would require another £40,000, with no costs already counted in the first period. The combined requirement is £160,000. This scenario exposes a £40,000 shortfall against its £120,000 of free reserves. Map the timing so you don’t count the same notice-period salaries twice; test other plausible scenarios before trustees approve a target.
The commitments already approved
Check capital projects, match funding, and multi-year commitments against the latest board decisions. Give each an amount and expected spending date. Record which already have designated funds behind them.
A practical policy can then state the target, its assumptions, who can authorise a drawdown, and when trustees will review it. CC19 expects at least an annual policy review and monitoring during the year. Significant changes to funding or commitments should prompt another look sooner.
Your reserves target is useful only when you can explain what it needs to cover.
How Sage Intacct Helps You Monitor Charity Reserves
The calculation becomes harder to maintain when fund balances sit in the ledger, designations sit in board minutes, and reserve adjustments sit in a separate workbook. Sage’s UK non-profit guidance describes Sage Intacct’s fund accounting and reporting capabilities. Start with how you classify funds, then decide which calculations and reports your trustees need.
Record funds consistently
Sage’s UK product guidance describes dimensions as labels that classify transactions without multiplying account codes. You can configure a structure for your funds, grants, and programmes, with the restriction and designation information your reporting needs.
Agree that structure before migration, including how you record opening balances and transfers. A new designation needs an approved decision and a corresponding update to the records. That keeps the report connected to what trustees have agreed. Designated funds remain unrestricted; record the distinction clearly so a trustee decision doesn’t become a supposed donor restriction.
Build a repeatable reserves report
Sage Intacct supports custom financial reports and transaction drill-down. Design the reserves report to show unrestricted balances, the agreed exclusions, and the resulting free reserves. Keep a review step for commitments or judgements that sit outside posted transactions.
The same report can support successive board packs, using the same definitions. When trustees question a movement, you can investigate the underlying entries. For the £120,000 free-reserves illustration, your report should make each deduction visible. Anyone reviewing it can then see whether a change came from the operating result, an asset purchase, or a designation. You still need to maintain the adjustments and reconcile the figures to the accounts.
Make the reporting useful between meetings
Sage Intacct’s dashboards can bring selected financial reports into a regular management view. Alongside the reserves calculation, the board pack needs the approved target, the gap, and the forecast effect of agreed spending. Make the last review date clear. Trustees can then see which decisions the figures already include.
If the illustrative charity adopted a £160,000 target, the board pack would show its £40,000 shortfall and the action proposed to address it. Track the unrestricted operating result alongside that gap. A rising total fund balance could reflect a restricted grant that leaves the free-reserves position unchanged.
Use the figures to make a decision
Trustees could respond to that shortfall by building unrestricted income, changing planned spending, or reducing the exposure behind the target. Give the chosen action an owner and a review date. A later report should show whether it has changed the position. If reserves exceed the agreed range, ask what spending or future need justifies retaining the excess.
For a charity managing several grants and services, this is a practical reason to choose Sage Intacct: fund analysis and trustee reporting can use the same transaction records. Your team can spend its review time explaining the shortfall and assessing the response, with fewer separate versions to reconcile. The software supports that work; trustees still set the policy and approve the decisions.
What SORP 2026 Requires From Your Reserves Disclosure
The reserves requirements below apply to charities preparing accounts under SORP 2026. The Charity Commission confirms that it applies to accounting periods beginning on or after 1 January 2026. Charities preparing receipts and payments accounts don’t use the SORP framework.
Explain the policy and the actual position
ICAEW’s guidance on the new SORP says trustees must state their policy, the reserves held, and why they hold them. They must compare actual reserves with the policy and explain the steps towards the target where the figures don’t agree.
The report must also explain material designated or committed funds and when the charity expects to spend them. If the link between reserves and the accounts isn’t evident, provide a reconciliation. A charity with a normal April-to-March financial year first applies the new SORP in its accounts to 31 March 2027. Our guide to Charities SORP 2026 changes covers the wider reporting work.
Prepare the explanation during the year
Keep the reserves calculation, approved designations, and management commentary together as you prepare board papers. Explain whether a movement reflects an intended drawdown, a revised estimate, or a change that needs action.
That gives you a record of decisions to draw on when preparing the annual report. It also helps trustees distinguish a temporary difference from a longer-term funding problem while they still have time to respond.
Put Your Reserves Policy to Work
Take the next board pack and check whether it shows the target, the current free-reserves calculation, the unrestricted cash available, and the reason for any gap. Give trustees the proposed action alongside the figures, including what it means for the services you plan to deliver.
If separate fund spreadsheets make that a recurring exercise, Sage Intacct gives you a stronger basis for managing it. Bring a reserves calculation and a recent board report to a discovery session. We can discuss how to structure your funds and reports so your team can update the position without rebuilding the analysis each time.
References
- Charity Commission: Charity reserves: building resilience (CC19)
- OSCR: How should charity trustees set a reserves level?
- NCVO: Organising your finances for closure
- Sage UK: Sage for Non-profits
- Sage UK: Sage Intacct Dimensions
- Sage UK: Financial reporting and dashboards
- Charity Commission: The Charities Statement of Recommended Practice
- ICAEW: Financial Review: how to report on reserves under the Charities SORP 2026
