Thursday, August 14, 2008

Branch Reserves Policy

Now that we actually have some reserves (the result of a generous legacy, which pulled us back from a very dicey hand-to-mouth situation) we need to have a policy about the way we manage them, and at our committee meeting this week we agreed the formula below.

“Owing to the nature of our activities and supporter base, branch income is composed of a fairly regular component from fundraising activities and clinic fees and an unpredictable legacy component. This means that we receive occasional very large amounts which need to be used gradually to support the regular income rather than being spent during the year in which we receive them. We aim to keep our free reserves between an upper limit set at twice our annual operating costs and a lower limit fixed at the amount which would permit 12 months continued activity at current levels of regular earned income. 

At any point when free reserves dip below this 12 month safety limit we will have to begin cutting back the level of service which we provide.

At current income and expenditure rates the lower reserve limit is £41,000 and the upper limit is £260,000.”

In other words, if our steady income from the shops, clinic fees, collection tins etc. is £3,000 a month short of what we currently spend, we can calculate how long it would take before our saved funds ran dry. If the remaining time drops to 12 months we need to make emergency cuts until spending is in balance with the steady income. 

Our free reserves at the moment (after allowing for outgoings which we know will take place at the year end) amount to £120,000. This would sustain our current expenditure for three years provided our regular income stays at its existing levels. It means our work is reasonably secure, but there isn't much scope for "capital" projects (such as building an extension to our clinic for a "sluice room", which is one of the things we'd like to do).

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