1. Purpose of the Reserve Policy

This Reserves Policy is established in accordance with item 5(8) of the East London Cultures School Charity Articles of Association.The purpose of this Reserve Policy is to ensure the financial sustainability and stability of East London Cultures School Charity ("the Charity") by maintaining appropriate reserve levels. This policy outlines the principles, objectives, and guidelines for managing and using reserves in a manner that supports the Charity’s mission and long-term viability.

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2. Definition of Reserves

Reserves are funds set aside from the Charity’s income that are not earmarked for any specific purpose or restricted by donors. They are held to ensure the Charity can meet its obligations and continue operations during unforeseen events, financial challenges, or to manage cash flow fluctuations.

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3. Objectives of the Reserve Policy

The objectives of this Reserve Policy are to:

• Provide financial stability and protect the Charity from unexpected financial shocks.

• Ensure that the Charity has sufficient funds to continue its operations during periods of income shortfall or unexpected expenses.

• Maintain the confidence of beneficiaries, donors, and other stakeholders in the Charity’s financial health and sustainability.

• Allow the Charity to take advantage of future opportunities to further its mission, as and when they arise.

 

4. Target Level of Reserves

The Charity will aim to maintain unrestricted reserves at a level equivalent to [3-6 months]* of operating expenditure. This level is deemed appropriate to cover:

• Unforeseen drops in income.

• Unexpected essential expenditure (e.g., urgent building repairs, legal costs).

• Short-term cash flow issues.

• Strategic opportunities or investments that require short-term funding.

 

*The specific target level of reserves will be reviewed and set by the Trustees annually, based on the Charity's financial forecasts and risk assessment.

 

5. Reserve Allocation Strategy for Projects

Given the diverse nature of projects undertaken by the Charity, reserves will be allocated based on each project’s characteristics, development stage, profitability, and overall contribution to the Charity’s objectives. The following strategies will guide the setting aside of reserves for each project:

 

Early-stage Projects:

• Conservative Strategy (2% to 5% of Gross Income or 10% to 20% of Net Income):

  • For projects that are newly launched or in the market validation phase, where income might be lower, a conservative reserve level provides necessary support while maintaining financial flexibility.

• Moderate Strategy (5% to 10% of Gross Income or 20% to 30% of Net Income):

  • For projects with initial market feedback and growing income, this reserve level supports gradual expansion, such as marketing efforts or small-scale product development.

• Aggressive Strategy (10%+ of Gross Income or 30% to 50%+ of Net Income):

  • For high-potential projects with strong market response, higher reserve levels can fund rapid expansion and market capture.

 

Mature Projects:

• Conservative Strategy (1% to 3% of Gross Income or 5% to 10% of Net Income):

  • For projects that have reached market stability and slower growth, lower reserves suffice to maintain operations with minimal additional investment.

• Moderate Strategy (3% to 5% of Gross Income or 10% to 20% of Net Income):

  • For mature projects with some growth potential, especially when exploring new markets or expanding product lines, this reserve level supports moderate expansion.

• Aggressive Strategy (5%+ of Gross Income or 20% to 30%+ of Net Income):

  • For mature projects still capable of significant market share growth, higher reserves can fund large-scale expansion or innovation.

 

6. Monitoring and Reviewing Reserves

The Trustees will regularly monitor the level of reserves and conduct a formal review at least annually during the budget-setting process. This review will include assessing each project's reserve level based on its current stage and strategic importance. Any significant changes in reserve levels, whether increases or decreases, will be explained and justified in the Charity’s annual financial statements.

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7. Use of Reserves

Reserves should only be used in line with the following guidelines:

• The use of reserves must be authorized by the Trustees and align with the Charity’s strategic objectives.

• Reserves may be used to fund short-term operational deficits or to cover unforeseen and unavoidable costs.

• The Trustees must ensure that the use of reserves does not compromise the Charity’s ability to continue its core operations or meet its financial obligations.

 

8. Replenishing Reserves

When reserves fall below the target level, the Trustees will develop and implement a plan to replenish reserves within a reasonable timeframe. This plan may include:

• Increasing fundraising efforts.

• Reducing or deferring non-essential expenditure.

• Allocating a portion of any surplus income specifically to replenish reserves.

 

9. Reporting and Transparency

The Charity will be transparent about its reserve levels and the use of reserves. Information about the reserves policy, including the current level of reserves and any significant changes, will be disclosed in the Charity’s annual report and financial statements.

 

10. Policy Review

This Reserve Policy will be reviewed by the Trustees every three years, or sooner if there are significant changes in the Charity’s financial circumstances or external environment. Any changes to this policy must be approved by the Board of Trustees.

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Approved by the Board of Trustees on 06 August 2024