Reserves; whys and wherefores

In addition to annual income, Carlops Church has financial reserves with a current value of about £56,000. This seems substantial and people might say, “Why worry about income – we have reserves?” or, “The reserves can cover deficits on annual budget.” No, actually! This article describes the role of our reserves.

The reserves are held as £26,000 cash, plus investments in the Church of Scotland Investors Trust, currently worth about £30,000. This balances the safety of cash deposits and the higher returns obtainable in the long-term from the stock market.  The reserves derive largely from the sale of Carlops manse in 1968. They are a once-only benefit; no such future resource is foreseeable.

The reserves have two main purposes: to cover major expenditure (planned and emergency) on the church and our shared manse; and to smooth cash flow between income and expenditure on the current account.

First – addressing major expenses which cannot be met from one year’s income. Refurbishment is an example; we raised funds for it, but cash reserves were used as a temporary bridge between payments due for work done and grants secured, but received only upon completion, and donations promised, but paid in instalments over some months.  Reserves would also pay for emergency work not covered by insurance, and for upgrades required by new regulations; for example, the linkage recently invested significantly to upgrade the manse.  Without the capacity to meet such occasional, large and unavoidable expenses, our church would face severe financial difficulties.

Second – smoothing cash flow.  Income flow is uneven: weekly offerings; monthly or annual standing orders; quarterly tax refunds from Gift Aid; occasional fund-raising events.  Expenses however (eg, ministry, electricity, insurance), arise throughout the year.  Consider a current account empty at the start of the year – expenses would exceed income almost immediately.  Uneven cash-flow could place the church in debt during much of the year, even though it may have a small surplus at year end.  Temporary transfers from reserves keep us in credit.  Our church has no overdraft facility and is too small to risk being in debt at any point; the reserves are needed to resolve this.

So, the reserves are not a luxury, not a pot to dip into at will, but a resource with a clear purpose and a vital role in keeping our church healthy.