Reserve Funds

[Guest]

This might seem like an odd question to those whose settings are struggling to stay afloat, but I've taken over as chair of a pre-school committee and we have a ridiculous amount in our reserve. (I won't be specific on here but suffice to say over £10k). This seems to have come about as we have a very active fund raising sub committee who do maybe 10 events a year.

 

I'm trying to persuade the team to invest more of our reserve in the setting, but they are reluctant. For instance, I suggested giving our leader a budget rather than making her come kow towing to us for every penny. This didn't go down well ('if we give her a budget she will just spend it all' - well, yes, that's the idea with a budget!)

 

Any ideas for encouraging them to let go of the purse strings a bit, and also how much do you think is a sensible amount to have in the reserve? I've been told 3 months redundancy for staff, does that sound about right?

 

My feeling is that if we invest this money sensibly, we will get more children coming to our setting, and consequently more income and more stability in the future (numbers do go up and down according to local birth rates).

[Rea]

It was always suggested to us by the PLA that we keep 12 weeks rent and wages in reserve. If the money you have allows for this and then has some over there is no reason why you couldnt spend some. Most leaders have a budget I would think. They know what is needed on a daily and weekly basis and would stop them from having to 'kow tow' as you say. Do you feel the children miss out on opportunities while permission is sought?

If you are a non-profit making organisation there may be rules (not too sure about this though) that dictate how much you have in reserve. The charity commission site should have answers to that or if you're part of Lawcall they are good at answering questions.

[Guest]

Thanks for the ideas, Rea, I found this on the CC site:

 

41. A charity which builds up reserves by retaining, as a matter of habit alone, any annual surpluses it makes will scarcely be able to justify holding those reserves.

 

This document seems to be saying that, given we're fund raising as a charity, it's our duty to those who have donated to actually use the funds to help improve things for those we serve.

[Guest JPH]

We aim to keep enough in reserve to cover a terms basic costs, plus redundancy money (which as we have a stable staff team adds up to a fair amount!). You shouldn't need to keep more than that (unless saving up for something in particular). As a parent, if I did fundraising I would hope it would be used to be of benefit to my child .....

[Guest]

That's my feeling too.

 

I've put this down as something to talk about in the next committee meeting.

 

I think there's a reluctance to be seen as the one who goes about spending all that money which has been raised, but otherwise I can't see what the point is in raising it!!

[Rea]

You have to be careful when you fundraise. If you hold an event to raise money for a bike and then spend the money on a dolls house, the people who rasied the money have every right to ask for the donations to be given back. You cant fundraise for equipment and then not buy any. I dont think you can raise money just in case or for wages or rent either, those are your basics that should come out of you annual budget.

[valp59]

As a parent I too would be unhappy raising funds for which the children did not receive any benefit - what is the point? And as SuzieC8 has pointed out the Charity Commission would look very unfavourably on this (maybe this is what you need to quote to the Committee?). Before I took over my current pre-school as a private concern it was run as a charity and I was the treasurer and we definitely didn't want to keep large amounts sitting doing nothing in a bank. If the committee are being difficult may you could suggest a poll among the parents 'to spend' or 'not to spend' ? I think I can guess the answer!!

[Guest]

Thanks everyone. I think the problem is there have been a couple of lean years where the preschool ran at a loss, but the way I see it the more we invest the more children we will attract.

[Guest]

We keep a term's rent and wages back and if we had a lot more maybe a little extra. In fact schools are being made to spend their budgets and are only allowed to retain a small proportion of their annual budget. If they start to store up large reserves which are unallocated on budget predictions the LA can take the money back. It all works to the idea that funding should benefit the children for whom it is allocated. I think a similar attitude should be applied to fundraising unless a specific long term goal is determined.

[Inge]

we kept 1 terms, wage and rent, plus redundancy money for the staff,

 

I thought any fund-raising money was not to be used for this it had to be spent and being a charity, we had to do an annual return to charity commission, this had amount we fund raised and what we spent it on each year... and our annual accounts backed this up...

 

we too felt the parents who fundraised should see the benefit for their children...

 

we often had lean times, and good times, but they always spent fundraised money

 

how about suggesting they spend a set amount and then fundraise to replace the cash in the account.we did this for garden house and other large stuff.. do this every year and it will be spent!

 

Inge

[Guest]

Could I ask how you calculate the redundancy money - I know there's some kind of formula?

 

I've got our treasurer to work out the 12 weeks wages and rent and it comes out at over £7k. Does anyone know where this 12 weeks figure comes from? We would need to justify it as you say in our annual report to the CC. In fact if it weren't for fund raising monies we wouldn't be able to keep that kind of amount to one side, we certainly don't make a profit in a normal year.

 

My idea would be to put aside £8k in a long term deposit account so we get higher interest. There's not really much likelihood that the setting will close so it could happily sit there earning. Then with the rest we maybe keep aside £1k for any emergencies and invest the rest in the setting.

 

Thanks to everyone for their input.

[Inge]

redundancy calculator

 

not used it for a while but this was the one we used , calculated redundancy due every year and ensured we had a bit in reserve on top of the total for any extras such as after a birthday when it goes up... we found it easier than doing it individually on birthdays and length of service changes...

 

Inge

[Upsy Daisy]

I have to say that, as a parent, I would not be too impressed to find out that money was sitting in a bank account when it could be used to buy resources for the setting. Of course you have to keep enough in reserve to cover redundancies etc but what is the point of keeping more than that?

 

Perhaps a little could be spent on advertising if there is a concern about recruiting children in the future. Then some lovely new resources to see when they come to look round will do the setting the world of good!

Edited June 4, 2009 by AlisonP

[Inge]

sorry only half read the post... our terms are 6/7 weeks long... forgot not everyone has the same.. and we only kept 4-6 weeks aside to help cover our lean times in September at beginning of term, it was just our situation that parents often just turned up in sept for places and did not pre-book, so we could not foresee any income, and had to ensure that we would be open for that time each year , we were usually fine after that, and once we had built up that reserve it stayed... we were never in profit and only broke even each year...even often had a bit of a loss...

 

we had it in a high interest account and had it in the account as redundancy money highlighted so CC knew why we had such a high reserve... all our staff were well established and our total redundancy due was quite high... (well until I left, then it plummeted!)

 

Inge

[Guest]

Thanks for that, it is really helpful. I will pass on that link to our treasurer.

[sunnyday]

Hi Suzie - I don't have any experience of Committee run groups .........hmmm.......perhaps I should keep my opinions to myself!

 

It occured to me that perhaps there should be two accounts - one for day to day running costs (which would need to include 'cover' for emergency situations, reduntancy etc.etc.) monies to 'feed' this account would come from NEG and fees only.

And a completely separate 'Fundraising Account' - the way I see it there would not be any need for any funds to be 'kept' in this account - unless you were 'saving' for costly equipment.

 

I am surprised that parents haven't asked or made comment about how this money is spent .... or perhaps they have?!

 

Do you 'publish' accounts. I am a Trustee for two village organisations and we make our accounts available to any interested party.

 

One of the organisations has to keep some money 'back' to act as a'float' for the following years fundraising activities - but we 'justify' this in our 'Financial report'.

 

Good luck with it all

Sunnyday

[Guest]

Thanks for your thoughts. I like the idea of a separate account for what has been fund raised. At the moment from what I can gather everything gets chucked into one big pot and often the money that has been fundraised is used to tide us over lean times.

 

I am only very slowly getting to grips with the finances - it's not my strong suit but luckily we have a good treasurer.

[lynned55]

Our money all goes into the same account regardless whether f/raising or fees/funding. We do keep around 8k in a high interest account though for 3 mths running costs. Are we also suppossed to keep enough for redundancies as well? If so that would cripple us, out of 7 staff 6 of us have been there from between 10 -15 years. According to the calculaor above redundancies could cost us nearly 20k!! A lot of money!!

[Inge]

Our money all goes into the same account regardless whether f/raising or fees/funding. We do keep around 8k in a high interest account though for 3 mths running costs. Are we also suppossed to keep enough for redundancies as well? If so that would cripple us, out of 7 staff 6 of us have been there from between 10 -15 years. According to the calculaor above redundancies could cost us nearly 20k!! A lot of money!!

 

 

cannot remember if you are committee or not.. but I do know if committee run and not incorporated then the committee would be responsible to pay your redundancy money should anything happen.

 

Cannot remember exactly, but believe there is something in claiming unemployment benefit or what ever the current one is which you have to have had a redundancy payment to claim it... so staff cannot say we will waive it.. legal obligation of employer.

 

Inge

[Inge]

Makes it sound like my memory is going now too...

 

Inge

[Guest]

Hi again, I spoke to the PSLA about this at the end of last week.

 

Their advice was to have 3 months running costs plus redundancy. However, I am going to phone again next week to query that - if they are saying 3 months running costs, then does that mean wages and rent MINUS what you get in with fees and grant (i.e. pretty much break even for us)? Because you're hardly going to keep the setting open without asking for fees, and if you shut the setting and pay wages for 3 months then that is effectively the same as paying redundancy.

 

I certainly don't want to tie up about £10k in funds because I don't think it's a good use of the charity's money. I'm not sure the PSLA's advice should always be taken as gospel, although obviously they are very experienced at all this.

 

It would seem crazy for you to have to put aside £20k - are they trying to encourage you to let experienced staff go or something?

 

What do others think?

[sunnyday]

Do keep us up to date with info. - I'm sure we will all be interested in what the PSLA have to say.

[Inge]

Redundancy requirement is set by government and is a legal requirement, nothing to do with PSLA. Everyone is entitled to it once they have worked 2 years in one place.

 

PSLA are just telling you to keep enough in reserve or the committee become liable to pay it.

 

I feel it important that committees are aware of their obligation should anything go awry and there are not enough funds to pay the staff.

 

 

In todays climate it is even more important to be aware and have funds available for this..

 

It may not look like good use of charity money but if something were to happen you may be less happy if it had to come form the comittee..

 

Inge

[Guest]

I appreciate what you're saying, Inge, luckily for us our total redundancy would not be too high, but I do wonder about what they say on the need for 3 months rent and wages. I will feed back when I hear back from them.

 

The other thing to consider is that if the setting closed, presumably you could sell off assets to cover any shortfall. Surely these should also be taken into account when calculating how much is needed in the reserve fund? We must have a good £1k worth of resources.

 

Luckily for us, even if we have to reserve £10k or so, we will still have quite a bit left over in invest in the setting, which was my initital quest when I started this thread.

[Beau]

I appreciate what you're saying, Inge, luckily for us our total redundancy would not be too high, but I do wonder about what they say on the need for 3 months rent and wages. I will feed back when I hear back from them.

 

The other thing to consider is that if the setting closed, presumably you could sell off assets to cover any shortfall. Surely these should also be taken into account when calculating how much is needed in the reserve fund? We must have a good £1k worth of resources.

 

Luckily for us, even if we have to reserve £10k or so, we will still have quite a bit left over in invest in the setting, which was my initital quest when I started this thread.

 

Check your constitution Sue. If it is a PLA one you may find that all the equipment goes to them if the setting closes.

[Guest]

Wow, Carol, thanks for that nugget of info. But why should that happen if the setting bought the resources?

 

I'm not saying that we would end up with any profits if we closed, but surely we'd be able to sell our assets like any company? I don't see how they can say that committee are liable for any shortfall, but then take away one possible method of making up the difference.

 

Of course, all this is worst case scenario, our pre-school has survived 40 years I don't think it's going to fold anytime soon.

[Beau]

Actually, its something that has come up before and mentioned by other members of the forum but I've never really looked into it myself. I've just looked at the model constitution on the PLA site and any assets would go to them (or some other agreed source) after all debts and liabilities have been satisfied. So I think you are quite right, the equipment could be sold off to wind up the business and pay staff wages/redundancy in the first instance.

[Guest]

Have looked in detail now Carol at the constitution and any sale of resources would first be put towards paying off redundancies, etc. so in theory I would assume you could take that amount off what you'd need to keep in your reserve, iyswim?