Reserves & Financial Sustainability Policy
Policy adopted by the Board of Life Without Debt Ltd to ensure the Company maintains sufficient financial reserves to meet its commitments to beneficiaries, employees and creditors, and to safeguard the ongoing pursuit of its charitable purposes. Aligns with ACNC Governance Standard 5 duty of responsible financial management.
1. Purpose
Charities have a duty under ACNC Governance Standard 5 to manage their finances responsibly and to avoid trading while insolvent. This Policy sets the Company's approach to holding operating reserves, restricted funds and endowment funds, and to the assessment of financial sustainability at each Board meeting.
2. Reserve categories
| Reserve | Purpose | Target level | Board approval required to draw down |
|---|---|---|---|
| Operating Reserve | Cover routine operating expenditure and short-term revenue volatility | 3 months of forecast operating expenditure (target level; minimum 6 weeks) | CEO within budget; Board approval if drawing below the minimum |
| Direct Relief Reserve | Fund the Direct Relief Program up to 25% of annual outlays as capped by the Direct Relief Policy | 25% of annual charitable outlays | Case Officer within Direct Relief Policy caps; Board resolution for exceptions |
| Restricted Funds | Amounts received subject to donor restrictions (e.g. a grant specifically for a program) | As restricted | Only for the specified restricted purpose; not available for general use |
| Endowment / Surplus Reinvestment Fund | Long-term capital used to sustain the charity and reduce grant-funding dependency (see Surplus Reinvestment Policy in the internal Structure documentation) | Governed by Surplus Reinvestment Policy | Board resolution |
3. Setting and monitoring the Operating Reserve
- 3.1 The Board sets the target Operating Reserve annually as part of the budget process, expressed as a number of months of forecast operating expenditure. The target is a minimum of 6 weeks and an objective of 3 months.
- 3.2 The CFO adviser (or internal Finance Manager, once appointed) reports the actual reserve position monthly to the CEO and quarterly to the Board.
- 3.3 If the Operating Reserve falls below the minimum, the CEO must:
- immediately notify the Chair;
- convene a Board meeting within 14 days;
- prepare a cash-flow recovery plan for Board consideration;
- where required, defer or reduce discretionary expenditure (including Direct Relief payments beyond firm commitments) until reserves are restored.
4. Solvency test
- 4.1 Before the Company incurs any material commitment, the CEO must satisfy themselves, in accordance with sections 588G and 588GA of the Corporations Act, that the Company will remain able to pay its debts as and when they fall due.
- 4.2 The Board reviews solvency indicators (cash on hand, receivables ageing, payables ageing, funding pipeline confidence) at each meeting. Any concern is escalated to a "cash-flow crisis" agenda item and, if unresolved, to a formal solvency review.
5. Investment of surplus funds
- 5.1 Surplus funds not required for immediate operational use may be invested only in:
- Australian ADI transaction and term-deposit accounts;
- Australian Commonwealth-issued or state-issued government bonds;
- APRA-regulated Cash / Fixed Income managed investment schemes with minimum acceptable credit quality;
- such other investments as the Board approves following independent professional advice.
- 5.2 The Company must not:
- invest in speculative, unlisted or high-risk instruments;
- invest in any entity in which a Director or related party has a material interest;
- use surplus funds as security for third-party obligations.
6. Funding-diversity target
To reduce concentration risk, the Board aims for no single funding source to represent more than 40% of total revenue in any financial year (after the first two years of operation). Progress is reported annually.
7. Reporting
The Company reports its reserves position:
- in monthly management accounts to the CEO;
- in quarterly reports to the Board;
- in the annual financial statements to Members and the ACNC;
- on the ACNC Charity Register (via the Annual Information Statement).