Unrestricted Reserves
Value of freely available financial reserves held, expressed in months of operating expenditure
What is Unrestricted Reserves?
Unrestricted reserves, measured in months, show how long a charity could keep operating from its free funds if income stopped. It compares free reserves with monthly running costs.
Reserves protect an organisation from shocks, and trustees usually set a policy on how many months of spending to hold.
How this KPI is measured
- Function
- Finance
- Sub-function
- Financial Sustainability
- Industry
- Not-for-Profit / Charity
- Type
- Lagging
- Impact
- Financial control
- Unit
- months
- Measurement frequency
- Quarterly / Annual
- Formula
- Unrestricted reserves / (Total annual operating expenditure / 12)
How to calculate it
Divide unrestricted reserves by total annual operating expenditure divided by 12.
For example, with unrestricted reserves of 3,000,000 and annual expenditure of 12,000,000, monthly costs are 1,000,000, so reserves cover 3 months.
Use funds that are truly free, excluding fixed assets and designated funds, and review the policy against the risks the organisation faces.
Where it is used
Managing financial resilience
Know how long you can cope.
Setting a reserves policy
Agree a target.
Reporting to trustees and funders
Show prudence.
How to improve it
Tips and common mistakes
- Too little is risky. Too much may need explaining to funders.
- Follow charity regulator guidance.
- Explain the policy in reports.
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