23rd October 2020
In light of COVID-19 and the UK lockdown in March, the professional institutes and membership bodies (PIMBs) sector has been considering the impact of the global pandemic on both the short and long term.
One key discussion point has centred on the new normal: what is it? Do we need to change our policies because of it? A policy that is vital to consider and change without haste is your reserves policy. It is more important now than ever to look ahead and have the right level of reserves for your organisation, to have sufficient funds readily available to cover costs and cope with instabilities of income. In addition, office space requirements and its impact on the organisation’s cost base and available reserves going forward.
Reserves have been on an upward trend before the pandemic: at the launch of PARN’s 2018 Financial Benchmarking in November 2019, total reserves had increased in the sector from £12.5bn in 2008 to £12.78bn in 2018. The average reserves per months of income for a professional institute was 16.5 months in 2018, with charitable institutes holding on average 19.9 months compared to 9.6 months by non-charitable bodies, and chartered bodies holding on average 17.9 months compared to only 15.9 by non-chartered bodies.
The reserves levels being held this year are certainly within haysmacintyre’s expectations and knowledge of the sector, however there are additional considerations needed to handle the strain faced as a result of the pandemic.
Each organisation must allow sufficient time to look closely at the level of reserves held, and adjust accordingly.
Immediate access to funds
It is common for professional institutes to hold most of their reserves in property or restricted cash. This may mean that funds cannot be easily accessed in a time of crisis. Organisations should understand their access to liquid funds and consider this as part of reserve planning.
Often reserves policies are set as a level of operating expenditure, but why was this level set and how does this compare to the level of reserves do we need to manage that situation sustainability?
Writing the policy
Reviewing your reserves policy in the current situation is paramount to allow your organisation to access the funds it needs. In developing a reserves policy, organisations should fully justify and clearly explain why it is holding reserves (or not). To assist in this process, we’ve provided below a few key considerations for organisations undertaking a policy rewrite:
Does the policy:
- Identify and plan for the maintenance of essential services for your members?
- Reflect the risks of unplanned closure associated with your business model, spending commitments, potential liabilities, and financial forecasts?
- Help to address the risks of unplanned closure on your members, staff, and volunteers?
In addition to the considerations above, does your organisation:
- Regularly monitor and review the effectiveness of the policy in the light of the changing financial climate and other risks?
- Understand which elements of your reserves are freely available to spend on any of the organisation’s purposes?
The reserves policy must link to your overarching strategy, future commitments and financial risks. The continued global pandemic may suggest that a higher level of reserves is required to manage the organisation through a time of uncertainty, however it may be that more spending is required to support your membership (or to cover costs of members wanting membership holidays) and therefore to hold a lower level than your target may be appropriate in the short term.
Many may think that reviewing the reserves policy is just another compliance exercise for the annual audit and accounts, however thinking about reserves has never been more important, or more urgent, for the future of your organisation.
Ensuring your organisation communicates effectively with members is also fundamental, especially in cases where property is concerned. While there may be temporary reductions to space requirements, your policy must reflect enough flexibility to cope with changes in the current climate while still protecting your resources for the future.
We are very much looking forward to seeing the reserves levels highlighted in the 2019 PARN Financial benchmarking Survey but appreciate that the real impact of COVID-19 may not be seen until the 2020 survey and beyond.
If you have any questions about reserves or haysmacintyre’s services for Professional Institutes, please contact Kathryn Burton, Head of PIMBs.