In line with the Association’s Reserves Policy the objective of this Statement is to provide a concise explanation of the quantum and purpose of the Association’s Reserves.
The Association runs a small residential home, known as Ridout House, at 9 Midvale Road St Helier. The nature of our charitable activities means that our main cost is of the provision of staff in fulfilling our aim of providing ‘a home from home’ in comfortable, safe and warm surroundings.
Being the size it is the Association’s property only lends itself to providing a maximum of 9 rooms so even one vacancy has a proportionately higher financial impact than in larger residential homes. The effect of this is that, to cover periods of vacancy, we have to set aside a larger slice of income than other homes have to as a buffer.
As a charity we are reliant on the amount of support most residents receive from the Social Security Department. As for self-funded residents we find it inequitable to charge more than this level to them as they receive the same level of care. Thus on no account are any extras added to the bills rendered to the residents.
The upshot of this is that our business model is tight, so depending on the level of care required by the residents, our break-even point is around 80% occupancy.
As stated in the Association’s 2017 Audited Accounts ‘maintaining the equivalent of six months running costs at a minimum is deemed prudent to deal with any fluctuations in occupancy’ and this view is unchanged. This would produce a minimum reserve of £162,500, based on the costs for that year.
The trustees have also conducted a strategic review of required levels of reserves in the event at any time the business was required to wind up. The Trustees estimate that an orderly wind down of the business will amount to some £80k, which includes circa £40k of contingent employer liabilities. It should be noted that this is not required in addition to the sum above but we need to be aware that the reserves would cover this eventuality.
In addition reserves are also need to cover:
- The ability to meet any substantial emergency expenditure on the premises in the event of unexpected capital cost whilst funds are sought from donors.
- To have some limited headroom to reinvest in the premises and equipment in future years along with donors for planned projects as and when they arise (please note the trustees maintain a financial calendar with estimates of likely costs and timeframe to undertake these).
- To cater for the increasing costs of regulation. This is one area where both the direct costs and the attendant legal/technical costs have risen over the past few years so a reserve of £10,000 would be sensible.
Thus the trustees believe that reserves to the order of £200,000 would be a prudent level at which these should be set.