Talk:Meetings/2009-04-26/Agenda/Reserve Policy

The obvious question is: do we need a reserve policy this early on? We currently have no long term commitments, and the company is very young and growing rapidly, so I'm not convinced that there is much benefit at this point. When we start having offices, staff, etc., then that would seem to be the best time to introduce this. Before that, perhaps this is just reflecting the british love of bureaucracy? Mike Peel 06:55, 21 April 2009 (UTC)

I, too, cannot see the benefits of this at this early stage. Our revenues are so little as to cause us to hold a reserve that is near pointless - and would most likely only harm the company rather than benefit us. As we grow there will be a time for this to be introduced, but I don't feel that it is now. --Skenmy 07:02, 21 April 2009 (UTC)

Have you read the Charity Commission guidance I linked to? They recommend all charities have a reserve policy, although small charities can just have something very simple (I consider what I've written to be very simple - it doesn't go into any details about how much we need in reserve for different things, where those reserves will come from, etc.). Regardless of size, it would never be a good idea to let the bank account run dry - the £1000 minimum is intended to be enough to hold an EGM, I think we should always be able to hold an EGM at short notice in case things go horribly wrong (£1000 is probably more than enough for that - I could be persuaded to reduce it to £500 if people want. This is just a proposal, the numbers can be changed.). The obligation not to hold on to too much reserves also applies to charities of all sizes - we can't spend out first few years saving up and not spend anything, while we all know that, it might as well be formalised. I think having a formal reserve policy would look good when the CC reviews everything before deciding whether to give us registered charity status - if we don't have one, they may ask about it and that would just delay things. --Tango 13:12, 21 April 2009 (UTC)

I can see the need for some kind of policy, but I think all your numbers are way too high, at least for now. I'd say £100 (for which an EGM could just about be held) and 10% (or maybe even less). You hold reserves to guard against necessary but unforeseen expenditures. Though it is of course in the nature of "unforeseeable expenditures" to be unpredictable, I can't imagine what on earth would require us to spend half our yearly income on short notice. I also think the minimum spend policies are inadvisable. There is no point throwing money out of windows if we haven't found anything useful to do with it. Mandating me (or my successor) to invest money over a certain amount in savings accounts would be rather more useful. To be honest though I think we'd be better off just being financially careful for the first few years, without setting anything in stone. --Cfp 21:32, 21 April 2009 (UTC)

You won't get 7 board members to the same place at short notice for £100. As the policy says, the reserves aren't to protect against unforeseen expenditures (there shouldn't be any of those at this stage, when we reach the stage were there could be (staff going off sick and needing to be temporarily replaced, say), we'll amend the policy accordingly), they are to protect against unforeseen drops in income - something happening which halves donations is conceivable (really bad press just before the fundraising drive, for example). It doesn't even need to halve, if it drops by 25% for two years, that's the same end result (although it would be easy to cut expenditure in that case). Have you read the CC guidelines? Not building up excessive reserves is the main purpose of a reserves policy - it explicitly says that just saving any surplus without any specific intentions is a bad idea. You could consider the 100% limit as sufficient protection against that, but I would like to allow ourselves to build up a larger reserve than I think it would be reasonable to build up in one year (precisely what is reasonable is up for negotiation - feel free to suggest alternative numbers). If we can't find anything useful to do with the money we should stop asking for donations - in fact, people will just stop giving them to us if they realise we don't need the money. --Tango 23:48, 21 April 2009 (UTC)

Haven't read that document yet no. But beyond a certain point building up reserves becomes building up an endowment, which does make long term financial sense (and is "something useful to do with the money", since there are plenty of hypothetical scenarios in which our income would fall massively in the future, e.g. WP becoming ad supported). I would expect that in our first year after the fundraising drive we'd have some considerable difficulties in spending much of our income, and this is as it should be. It would be a grave mistake to too rapidly expand our expenditure, since that will inevitably lead to inefficiencies, wasting money and improper systems being in place for ensuring it's furthering our objects. If you get elected to the board irrespective of whether we have a policy like this you'll still have plenty of opportunity to comment on whether we're spending too much or not enough. --Cfp 10:01, 22 April 2009 (UTC)

OK read the doc. My understanding was that the key point of a reserve policy is to justify the level of reserves held. The justification is the important thing, not the formal policy. So my justification for low reserves until the first fundraising drive and high after follows:

• We're a new charity, with a ready source of zero interest loans from directors (or the WMF if the worst comes to the worst). Furthermore we expect to be significantly richer in a years time. In light of this we should not currently aim to build up reserves at all if we wish to do anything at all this year. (Though nor should we be spending frivolously in order to get rid of our money, since where possible we want to avoid the risk of the necessity of asking the directors for zero interest loans.)
• After the first fundraising drive we will have a massive increase in income. Until the structures have evolved for ensuring this income is efficiently spent in line with our charitable objects it would be irresponsible to expect to spend anyway near all of it. Instead we should be setting up initially small projects which once established and tested we will be able to grow in size (and expenditure). However even in the long run we should not aim to spend all of our annual yearly income, since there is a small but certainly non-zero probability that our access to WMF fundraising drives could cease at some point in the future. In light of this we should aim to save significant amounts with the very long term goal of running everyday expenses off earned interest.

I should also mention that I think I'm correct in pointing out that the SORP guidelines don't apply to us as at our current size. It would also be worth observing that this will only become a pressing issue when we are drawing up our first annual report at the end of the calendar year. --Cfp 10:28, 22 April 2009 (UTC)

Indeed, justification is the key issue. The current draft is pretty vague in that regard, which I think is acceptable for such a small charity (the CC guidance says the length and complexity of the policy should be related to the size of the charity). I'm hoping this reserve policy will last us more than just the first year, if we only want something for the first year it should be called an annual plan, not a policy. As it currently stands, we are not required to store any reserves beyond the £1000 (which I think we'll get fairly easily - a well written press release or two with our URL and a prominent donate link on the main page should be plenty to get us a few donations over the next couple of months), since our previous year's revenue was £0. There is still several months before the fundraising drive, I think we should have time to get everything in place. We will have to agree so spend 50% of the revenue from the drive on things agreed with the WMF anyway, and they probably won't accept "saving up" as one of those things. We could try and save up an endowment, but that would take an incredibly long time. Endowments usually come from people donating large sums of money specifically for that purpose (something we should talk to some rich people about). The reserves policy does not apply to such donations. --Tango 12:51, 22 April 2009 (UTC)

On a side note, unfortunately the SORP guidelines do apply to us as we are a charitable company. However, they only say we need to explain how we have complied with any reserves policy we have - they do not, in themselves, require us to have a policy. AndrewRT 22:57, 22 April 2009 (UTC)

Indeed, having a reserves policy is a CC recommendation, it isn't a requirement from anywhere, SORP or otherwise. I think it's a recommendation worth following, though, even if just so we look good when we try and register with CC. --Tango 23:22, 22 April 2009 (UTC)

Ahh yeah I see you're right. I'd seen on the page that there were different guidelines for charities with income under £250k, but not noticed that that was only for non-company charities... CIOs should have lower bureaucracy requirements. --Cfp 10:07, 23 April 2009 (UTC)

Yes, the main point of CIOs is the reduce the bureaucracy. Unfortunately, there is no sign that they are going to be ready any time soon. It could be another year or two yet, at this rate. --Tango 14:40, 23 April 2009 (UTC)