Pobal Community Services Programme 2014
Business Plan Guidance note on
Reserves Planning
Purpose of your reserves plan
In the Community and Voluntary sector it is considered good financial management for a
company to manage its affairs prudently, to make provision for unforeseen expenses such
as maintenance of buildings and equipment, and to have adequate cash on hand to cover
cashflow during peaks and troughs of income. This requires the company to build up a
reserve of funds to cover these contingencies. A reserves plan identifies these needs as
they pertain to the individual company, and the associated assumptions and calculations.
The balance sheet of the annual audited financial statements (AFS) will show the Total
Reserves that a company holds as at the balance sheet date. This Total Reserves figure
may be made up of Capital Reserves and Revenue Reserves which may be ‘restricted or
unrestricted’.
Definition of the type of Reserves to be included in a Reserves Policy
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Capital Reserves are represented by the tangible assets of the company (buildings,
equipment, motor vehicles etc.) and are therefore not freely available to be spent at
the Directors/Management Committee’s discretion.
Revenue Restricted Reserves is the element of the company’s income that is
restricted to specific projects or programmes as defined by the programme or project
sponsor. The Directors and Management Committee, being responsible for the
funding contract, are not free to spend the funds at their own discretion.
Revenue Unrestricted Reserves would include income that is generated, as a result
of the company conducting its business or charging for its activities. It is income
available to a company to be spent at the Board of Directors or Management
Committee’s discretion, in furtherance of any of the company’s objectives as outlined
in its Memorandum & Articles of Association / Constitution. It is income which is not
yet spent, committed or designated i.e. is freely available for general purposes.
Required components of a Company Reserves Policy
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Set out below are the main questions to consider when preparing a plan. These
relate to a list of ‘priority expenditure’ items. This is not an exhaustive list and should
be tailored to a company’s needs.
The priorities outlined by companies in this section should be realistic and tailored to
match their current overhead and staffing costs.
Examples of Priority Expenditure
 Working Capital
 Looking at the pattern of income and expenditure over the year, how much
money do you need to have access to in order that you can cope with
expenditure (payroll etc) while waiting for expected money to come in? A
cashflow projection is intended to help you plan for this.
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Capital Costs
 Consider your premises, equipment, vehicles. How much do you need to
have in reserve to cope with breakdowns, repairs and unforeseen costs?
Note: this is really to cope with contingencies and emergencies. Unless
there are exceptional circumstances, your company is expected to raise funds
to cover complete renewal e.g. through fund-raising, borrowing etc.
Development
 What are your plans for developing your community service? Do you need to
make provision for the costs you incur, before your new or expanded service
actually starts to generate income e.g. market research?
Other contingencies
 Looking across your community service, the number of employees and level
of activity, how much do you need to have in hand to keep you going in the
event of other unforeseen events, e.g. loss of an income source. This is often
expressed as a number of weeks of operating costs. In reaching this figure,
you should be realistic but not too pessimistic e.g. you should assume that
CSP continues at the current rates for the foreseeable future.
Restricted and designated funds
 Larger charities usually have designated and restricted funds as distinct
headings in their audited accounts. If this applies to you, please outline the
assumptions made in assigning these funds.
A reserves plan should include the actual amount of revenue unrestricted reserves,
and this amount should be reconciled to the latest set of your AFS.
The reserves plan should also specify an indicative amount being set aside under
each of the priority expenditure headings applicable to your company’s needs, and
provide a clear rationale as to how this amount is calculated. These amounts should
also be reconciled to your latest set of AFS.
Monitoring and Review of your Reserves Policy
The board of management should approve the reserves plan and the decision must be
minuted. The policy should be reviewed regularly, and at the very least annually. It is up to
your company to decide when to do this, for example, when you are considering your
audited accounts, or when preparing your financial forecasts.