A recent investigation by the Charity Commission into negative balance sheets found that 10 per cent of the charities they reviewed were experiencing real financial difficulties. Holding financial reserves has traditionally been seen as a way of managing this risk; but the evidence shows that this is not working for many charities.
In 2012 Kate Sayer from Sayer Vincent helped the Charity Finance Group to produce a short publication called Beyond Reserves, which looked at the levels of reserves held by charities and the policies they had in place for managing them. It found that many charities agreed that there were better alternatives to holding as much as possible in reserves. Charities need a financial strategy that integrates risk management and addresses pricing, cash flow, return on investment and maximising returns from all assets.
You can find a download of Beyond Reserves here