Does Your Academy Trust Have the Right Reserves Strategy?

Maintaining healthy financial reserves is an important part of effective financial management for every academy trust. While there is no prescribed amount that trusts must hold, trustees are expected to demonstrate that their reserves are appropriate for the trust's circumstances and support its long-term objectives.

Rather than focusing solely on a target percentage, academy trusts should regularly review whether their reserves policy reflects current risks, future commitments and strategic priorities.

There Is No "Correct" Level of Reserves

One of the most common questions trustees ask is, "How much should we hold in reserves?"

The answer is that there isn't a universal figure.

The Department for Education makes it clear that trustees are responsible for determining an appropriate level based on their own circumstances. Factors such as the size of the trust, planned capital investment, growth ambitions, financial risks and estate requirements should all be considered when setting a reserves policy.

While many academy trusts choose to hold reserves equivalent to around one month's operating costs, this should be viewed as a starting point rather than a rule. Every trust has different funding pressures and priorities.

Why Holding Reserves Matters

A well-managed reserve provides financial resilience and gives trustees greater flexibility when unexpected challenges arise.

Reserves can help fund:

• Emergency repairs and maintenance.

• Unexpected staffing or operational costs.

• Delays in funding receipts.

• Capital investment projects.

• School improvement initiatives.

• Future expansion or trust growth.
  

Without sufficient reserves, even relatively minor financial shocks can place pressure on cash flow and limit a trust's ability to invest in improving educational outcomes.

Can You Hold Too Much?

Although healthy reserves are important, excessive balances can also attract attention.

Current government guidance suggests that trusts holding reserves of around 20% of annual income or more should be able to demonstrate why those funds are being retained and how they support future plans for pupils.

Large balances are often entirely appropriate where a trust is planning major building works, estate improvements or significant strategic investment. However, simply accumulating reserves without a clear purpose may be difficult to justify.

Consider Using Designated Funds

One way to improve transparency is by creating designated funds.

These allow trustees to earmark unrestricted reserves for specific future projects, such as:

• Estate maintenance programmes.

• IT infrastructure upgrades.

• Sustainability initiatives.

• School expansion.

• Curriculum investment.
  

Although designated funds remain unrestricted, they clearly demonstrate how reserves will be used and provide greater clarity for governors, auditors and regulators.

Review Your Policy Regularly

A reserves policy shouldn't be treated as a document that's written once and forgotten.

As funding arrangements, inflation, staffing costs and strategic priorities change, the policy should be reviewed to ensure it continues to reflect the trust's financial position.

Trustees should regularly ask:

• Does our current level of reserves still reflect our financial risks?

• Have our future spending plans changed?

• Are reserves being used effectively to support pupils?

• Can we clearly explain our rationale if challenged?
  

Being able to answer these questions provides confidence that the trust's financial strategy remains robust.

How SJC Can Help

Developing an appropriate reserves policy is about far more than choosing a percentage. It requires careful consideration of financial risk, future investment plans and the long-term sustainability of the trust.

At SJC, Chartered Accountants, we work with academy trusts across the UK to provide strategic financial advice, governance support and specialist audit services. Whether you're reviewing your reserves policy, preparing budgets or planning future investment, our education specialists can help ensure your financial strategy supports both compliance and educational success.

If you'd like to review your academy trust's reserves policy or discuss best practice, contact SJC, Chartered Accountants today.