{"id":5396,"date":"2026-03-11T09:21:02","date_gmt":"2026-03-11T09:21:02","guid":{"rendered":"https:\/\/expenseplus.co.uk\/fund-accounting\/?p=5396"},"modified":"2026-03-18T09:15:15","modified_gmt":"2026-03-18T09:15:15","slug":"key-financial-metrics-every-uk-charity-should-know","status":"publish","type":"post","link":"https:\/\/expenseplus.co.uk\/fund-accounting\/key-financial-metrics-every-uk-charity-should-know\/","title":{"rendered":"Key financial metrics every UK charity should know"},"content":{"rendered":"\n<p>Understanding key financial metrics is important for all churches and charities. Key financial metrics (sometimes known as KPIs &#8211; Key Performance Indicators) provide important insights into areas such as income diversity and donor engagement.<\/p>\n\n\n\n<p>Key financial metrics can also provide a measurable way to determine whether a charity is operating efficiently and effectively. They can help ensure the charity has sufficient cash to meet short-term obligations, as well as helping to assess the charity\u2019s long-term sustainability.<\/p>\n\n\n\n<p>Most charities are not short on financial metrics. The challenge is often knowing which metrics are important and what they show.<\/p>\n\n\n\n<p>This guide covers the key financial metrics to track.<\/p>\n\n\n\n<div class=\"wp-block-yoast-seo-table-of-contents yoast-table-of-contents\"><h2>In this article:<\/h2><ul><li><a href=\"#h-key-financial-metrics-income\" data-level=\"1\">Key financial metrics: income<\/a><ul><li><a href=\"#h-surplus-margin\" data-level=\"3\">Surplus margin<\/a><\/li><li><a href=\"#h-income-sources\" data-level=\"3\">Income sources<\/a><\/li><li><a href=\"#h-donation-statistics\" data-level=\"3\">Donation statistics<\/a><\/li><\/ul><\/li><li><a href=\"#h-key-financial-metrics-expenditure\" data-level=\"1\">Key financial metrics: expenditure<\/a><ul><li><a href=\"#h-expenditure-breakdown\" data-level=\"3\">Expenditure breakdown<\/a><\/li><li><a href=\"#h-employment-cost-ratio\" data-level=\"3\">Employment cost ratio<\/a><\/li><\/ul><\/li><li><a href=\"#h-key-financial-metrics-cash-and-reserves\" data-level=\"1\">Key financial metrics: cash and reserves<\/a><ul><li><a href=\"#h-liquidity-cover\" data-level=\"3\">Liquidity cover<\/a><\/li><li><a href=\"#h-free-reserves\" data-level=\"3\">Free reserves<\/a><\/li><li><a href=\"#h-reserves-policy\" data-level=\"3\">Reserves policy<\/a><\/li><\/ul><\/li><li><a href=\"#h-further-resources\" data-level=\"1\">Further resources<\/a><\/li><\/ul><\/div>\n\n\n\n<p class=\"wp-block-yoast-seo-estimated-reading-time yoast-reading-time__wrapper\"><span class=\"yoast-reading-time__icon\"><svg aria-hidden=\"true\" focusable=\"false\" data-icon=\"clock\" width=\"20\" height=\"20\" fill=\"none\" stroke=\"currentColor\" style=\"display:inline-block;vertical-align:-0.1em\" role=\"img\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" viewBox=\"0 0 24 24\"><path stroke-linecap=\"round\" stroke-linejoin=\"round\" stroke-width=\"2\" d=\"M12 8v4l3 3m6-3a9 9 0 11-18 0 9 9 0 0118 0z\"><\/path><\/svg><\/span><span class=\"yoast-reading-time__spacer\" style=\"display:inline-block;width:1em\"><\/span><span class=\"yoast-reading-time__descriptive-text\">Estimated reading time: <\/span><span class=\"yoast-reading-time__reading-time\">13<\/span><span class=\"yoast-reading-time__time-unit\"> minutes<\/span><\/p>\n\n\n\n<p>Understanding how your charity generates income is vital for your financial sustainability. You should keep track of these three important key financial metrics related to your charity&#8217;s income.<\/p>\n\n\n\n<h1 class=\"wp-block-heading\" id=\"h-key-financial-metrics-income\">Key financial metrics: income<\/h1>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-surplus-margin\">Surplus margin<\/h3>\n\n\n\n<p>A charity exists to deliver public benefit, not profit. However, generating a surplus allows a charity to invest in the improvement and expansion of its charitable activities, so understanding a charity\u2019s \u2018profit margin\u2019 (or surplus margin) is important.<\/p>\n\n\n\n<p>To calculate this, you will need to know the charity\u2019s <strong><em>total income<\/em><\/strong> and <strong><em>total expenditure<\/em><\/strong> for the financial period (typically a financial year).<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"453\" src=\"https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-1024x453.png\" alt=\"key financial metrics: Surplus Margin data in ExpensePlus\" class=\"wp-image-5397\" srcset=\"https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-1024x453.png 1024w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-300x133.png 300w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-768x340.png 768w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-370x164.png 370w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-760x336.png 760w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image.png 1090w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<p>The formula used to calculate surplus margin is shown below.<\/p>\n\n\n\n<figure class=\"wp-block-image size-full is-resized\"><img loading=\"lazy\" decoding=\"async\" width=\"453\" height=\"68\" src=\"https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-1.png\" alt=\"key metrics: equation for calculating surplus margin\" class=\"wp-image-5398\" style=\"width:453px;height:auto\" srcset=\"https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-1.png 453w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-1-300x45.png 300w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-1-370x56.png 370w\" sizes=\"auto, (max-width: 453px) 100vw, 453px\" \/><\/figure>\n\n\n\n<p>In the example above:<\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"838\" height=\"64\" src=\"https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-2.png\" alt=\"key metrics: equation for calculating surplus margin with example\" class=\"wp-image-5399\" srcset=\"https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-2.png 838w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-2-300x23.png 300w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-2-768x59.png 768w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-2-370x28.png 370w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-2-760x58.png 760w\" sizes=\"auto, (max-width: 838px) 100vw, 838px\" \/><\/figure>\n\n\n\n<p>As shown above, Surplus Margin is usually expressed as a percentage (by multiplying by 100):<\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"326\" height=\"36\" src=\"https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-3.png\" alt=\"key metrics: equation for showing surplus margin as a percentage\" class=\"wp-image-5400\" srcset=\"https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-3.png 326w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-3-300x33.png 300w\" sizes=\"auto, (max-width: 326px) 100vw, 326px\" \/><\/figure>\n\n\n\n<p>If the surplus margin overall is positive, the charity has made a surplus and its reserves will be boosted. A margin of zero means breaking even.<\/p>\n\n\n\n<p>If the margin is negative, the charity has made a deficit and is eating into its reserves. Depending on the size of the deficit, and the <a href=\"https:\/\/expenseplus.co.uk\/fund-accounting\/what-level-of-reserves-should-a-charity-hold\/\" target=\"_blank\" rel=\"noreferrer noopener\">level of reserves<\/a>, this may or may not be sustainable.<\/p>\n\n\n\n<p>A charity\u2019s aim will usually be to at least &#8216;cover its costs&#8217; (break even).<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-income-sources\">Income sources<\/h3>\n\n\n\n<p>Understanding a charity\u2019s income sources is important, particularly when it comes to assessing <a href=\"https:\/\/expenseplus.co.uk\/fund-accounting\/financial-risk-management-charities\/\" target=\"_blank\" rel=\"noreferrer noopener\">financial risk<\/a>. Income sources may include:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Donations<\/li>\n\n\n\n<li>Gift Aid<\/li>\n\n\n\n<li>Grants<\/li>\n\n\n\n<li>Event income<\/li>\n\n\n\n<li>Sales income<\/li>\n\n\n\n<li>Rental income<\/li>\n\n\n\n<li>Bank interest<\/li>\n\n\n\n<li>Investment returns<\/li>\n<\/ul>\n\n\n\n<p>Where a charity has only one main source of income, this may pose considerable <a href=\"https:\/\/expenseplus.co.uk\/fund-accounting\/financial-risk-management-charities\/\" target=\"_blank\" rel=\"noreferrer noopener\">financial risk<\/a> to the charity. For example, if this source of income were to end. This is particularly the case if the charity relies heavily on grant funding that\u2019s primarily from one or two funders.<\/p>\n\n\n\n<p>For many charities, diversifying income streams is a good way to mitigate against this financial risk.<\/p>\n\n\n\n<p><a href=\"https:\/\/expenseplus.co.uk\/fund-accounting\/understanding-key-charity-financial-reports\/\">Financial reports<\/a> such as the detailed version of the <a href=\"https:\/\/expenseplus.co.uk\/fund-accounting\/what-is-the-sofa-report-in-charity-accounts\/\" target=\"_blank\" rel=\"noreferrer noopener\">Statement of Financial Activities (SOFA report)<\/a> can be helpful by providing a breakdown of charitable income for organisations accounting on an accruals basis. Organisations accounting on a cash basis can use the Receipts and Payments Statement.<\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"940\" height=\"513\" src=\"https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-4.png\" alt=\"key financial metrics: income source data in ExpensePlus\" class=\"wp-image-5401\" srcset=\"https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-4.png 940w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-4-300x164.png 300w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-4-768x419.png 768w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-4-370x202.png 370w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-4-760x415.png 760w\" sizes=\"auto, (max-width: 940px) 100vw, 940px\" \/><\/figure>\n\n\n\n<p>Viewing this breakdown graphically is often really helpful, graphically, by downloading data and creating an image, for example in the form of a pie chart.<\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"942\" height=\"499\" src=\"https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-5.png\" alt=\"key financial metrics: income source data as a pie chart\" class=\"wp-image-5402\" srcset=\"https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-5.png 942w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-5-300x159.png 300w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-5-768x407.png 768w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-5-370x196.png 370w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-5-760x403.png 760w\" sizes=\"auto, (max-width: 942px) 100vw, 942px\" \/><\/figure>\n\n\n\n<p><em>Questions for your team:<\/em><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><em>Are you aware what percentage of your charity&#8217;s income comes from grants, rental income, donations, and other sources?<\/em><\/li>\n\n\n\n<li><em>How dependent is your charity on a particular funding source, individual or organisation?<\/em><\/li>\n\n\n\n<li><em>What would happen in terms of financial sustainability if a particular income stream stopped?<\/em><\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-donation-statistics\">Donation statistics<\/h3>\n\n\n\n<p>If donations are a key source of income for a charity, then the chances are the charity is already working to increase the number of donors that give, as well as encouraging donors to increase the amount they give. Two ways to increase donations is to <a href=\"https:\/\/expenseplus.co.uk\/fund-accounting\/simplify-the-donation-process-a-guide-for-churches-and-charities\/\" target=\"_blank\" rel=\"noreferrer noopener\">simplify the donation process<\/a> and <a href=\"https:\/\/expenseplus.co.uk\/fund-accounting\/10-things-to-consider-when-thanking-donors-in-your-church-or-charity\/\" target=\"_blank\" rel=\"noreferrer noopener\">thank donors for their generosity<\/a>.<\/p>\n\n\n\n<p>There are several reasons a charity might want to increase donations: for example, to cover a shortfall in income, to cover rising costs, to help diversify the charity\u2019s income, or to improve or expand existing charitable activities.<\/p>\n\n\n\n<p>Gaining an understanding of donor giving is really important. Being able to view this breakdown month on month is a really helpful metric, as it can make it easier to identify trends and track how successful a charity has been at increasing the donor numbers and how much donors are giving. If you are using a charity accounting package, then you should be able to view this information at the click of a button, with reports such as the donor summary report within <a href=\"https:\/\/expenseplus.co.uk\/\" target=\"_blank\" rel=\"noreferrer noopener\">ExpensePlus<\/a>.<\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"940\" height=\"337\" src=\"https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-6.png\" alt=\"key financial metrics: Donation Statistics data in ExpensePlus\" class=\"wp-image-5403\" srcset=\"https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-6.png 940w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-6-300x108.png 300w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-6-768x275.png 768w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-6-370x133.png 370w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-6-760x272.png 760w\" sizes=\"auto, (max-width: 940px) 100vw, 940px\" \/><\/figure>\n\n\n\n<p>Where the donations of a small number of individuals make up a large proportion of a charity\u2019s income, this is likely to pose a key risk to that charity. For example, if those donors were to decrease or end their giving.<\/p>\n\n\n\n<p><em>Questions for your team:<\/em><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><em>Are you tracking your charity\u2019s donor statistics?<\/em><\/li>\n\n\n\n<li><em>How successful has your charity been at increasing the number of donors and the amount donors give?<\/em><\/li>\n\n\n\n<li><em>Do you have one or two large donors?<\/em><\/li>\n\n\n\n<li><em>What would happen in terms of financial sustainability if a particular donor stopped giving?<\/em><\/li>\n<\/ul>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<h1 class=\"wp-block-heading\" id=\"h-key-financial-metrics-expenditure\">Key financial metrics: expenditure<\/h1>\n\n\n\n<p>Understanding how your charity spends money is important, particularly when it comes to the question of financial sustainability. You should keep track of these two important key financial metrics related to your charity&#8217;s expenditure.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-expenditure-breakdown\">Expenditure breakdown<\/h3>\n\n\n\n<p>Understanding the breakdown of a charity\u2019s expenditure is an important metric.<\/p>\n\n\n\n<p><a href=\"https:\/\/expenseplus.co.uk\/fund-accounting\/understanding-key-charity-financial-reports\/\">Financial reports<\/a> such as the detailed version of the <a href=\"https:\/\/expenseplus.co.uk\/fund-accounting\/what-is-the-sofa-report-in-charity-accounts\/\" target=\"_blank\" rel=\"noreferrer noopener\">Statement of Financial Activities (SOFA report)<\/a> can be helpful by providing this breakdown for organisations accounting on an accruals basis. Organisations accounting on a cash basis can use the Receipts and Payments Statement.<\/p>\n\n\n\n<p>However, note that if your charity creates accounts on an accruals basis, this report only shows expenditure. It does not include other costs such as loan repayments, mortgage repayments or fixed asset purchases, which may also need to be taken into consideration.<\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"940\" height=\"231\" src=\"https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-7.png\" alt=\"key financial metrics: expenditure breakdown data in ExpensePlus\" class=\"wp-image-5404\" srcset=\"https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-7.png 940w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-7-300x74.png 300w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-7-768x189.png 768w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-7-370x91.png 370w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-7-760x187.png 760w\" sizes=\"auto, (max-width: 940px) 100vw, 940px\" \/><\/figure>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"940\" height=\"312\" src=\"https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-8.png\" alt=\"\" class=\"wp-image-5405\" srcset=\"https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-8.png 940w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-8-300x100.png 300w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-8-768x255.png 768w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-8-370x123.png 370w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-8-760x252.png 760w\" sizes=\"auto, (max-width: 940px) 100vw, 940px\" \/><\/figure>\n\n\n\n<p>It can often be helpful to view the breakdown graphically, by downloading data and creating an image, for example in the form of a pie chart. Your charity might consider <a href=\"https:\/\/expenseplus.co.uk\/fund-accounting\/6-easy-ways-to-reduce-costs-for-your-church-or-charity\/\" target=\"_blank\" rel=\"noreferrer noopener\">how to reduce costs<\/a> and how it keeps track of spending using <a href=\"https:\/\/expenseplus.co.uk\/fund-accounting\/purchasing-policies-for-churches\/\" target=\"_blank\" rel=\"noreferrer noopener\">purchasing policies<\/a>.<\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"942\" height=\"422\" src=\"https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-9.png\" alt=\"key financial metrics: expenditure breakdown data as a pie chart\" class=\"wp-image-5406\" srcset=\"https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-9.png 942w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-9-300x134.png 300w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-9-768x344.png 768w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-9-370x166.png 370w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-9-760x340.png 760w\" sizes=\"auto, (max-width: 942px) 100vw, 942px\" \/><\/figure>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-employment-cost-ratio\">Employment cost ratio<\/h3>\n\n\n\n<p>Adequate spending on staff and operations is essential for a charity&#8217;s effectiveness, sustainability, and ability to deliver on its mission.<\/p>\n\n\n\n<p>Not spending enough on staffing can lead to a variety of problems. These might include the charity operating inefficiently, being unable to deliver effective services, employees being overworked, feeling stressed, poor morale, or higher turnover of staff.<\/p>\n\n\n\n<p>On the other hand, spending too much on staffing can cause financial challenges, particularly with rising employment costs alongside other cost increases.<\/p>\n\n\n\n<p>It\u2019s important that staffing expenditure is sustainable, and that sufficient finance is also available for non-staffing related costs. To calculate the employment cost ratio, take the total employment cost, divide this by the charity\u2019s total expenditure, then multiply by 100.<\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"481\" height=\"64\" src=\"https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-10.png\" alt=\"key metrics: equation for calculating employment cost ratio \" class=\"wp-image-5407\" srcset=\"https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-10.png 481w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-10-300x40.png 300w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-10-370x49.png 370w\" sizes=\"auto, (max-width: 481px) 100vw, 481px\" \/><\/figure>\n\n\n\n<p>In the above example:<\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"698\" height=\"67\" src=\"https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-11.png\" alt=\"key metrics: equation for calculating employment cost ratio  with example\" class=\"wp-image-5408\" srcset=\"https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-11.png 698w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-11-300x29.png 300w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-11-370x36.png 370w\" sizes=\"auto, (max-width: 698px) 100vw, 698px\" \/><\/figure>\n\n\n\n<p><em>Questions for your team:<\/em><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><em>What percentage of your charity\u2019s expenditure goes toward staffing?<\/em><\/li>\n\n\n\n<li><em>How has this changed compared to previous years?<\/em><\/li>\n\n\n\n<li><em>Is the number of staff you employ sustainable?<\/em><\/li>\n<\/ul>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<h1 class=\"wp-block-heading\" id=\"h-key-financial-metrics-cash-and-reserves\">Key financial metrics: cash and reserves<\/h1>\n\n\n\n<p>Understanding a charity\u2019s <a href=\"https:\/\/expenseplus.co.uk\/fund-accounting\/what-level-of-reserves-should-a-charity-hold\/\" target=\"_blank\" rel=\"noreferrer noopener\">reserves<\/a> is essential for the charity\u2019s smooth operation. We\u2019ve included the two most common key financial metrics on cash and reserves and how to calculate them.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-liquidity-cover\">Liquidity cover<\/h3>\n\n\n\n<p>This metric is a useful measure that shows how many months of operations a charity can afford with its current unrestricted cash in hand if there were a sudden loss of income.<\/p>\n\n\n\n<p>To calculate this metric, you will need to know the charity\u2019s <strong><em>Unrestricted cash in hand<\/em><\/strong>. This figure is easy to find on the charity\u2019s <a href=\"https:\/\/expenseplus.co.uk\/fund-accounting\/what-is-the-balance-sheet-in-charity-accounts\/\" type=\"link\" id=\"https:\/\/expenseplus.co.uk\/fund-accounting\/what-is-the-balance-sheet-in-charity-accounts\/\" target=\"_blank\" rel=\"noreferrer noopener\">balance sheet by fund report<\/a> (if accounting on an accruals basis) or your Assets and Liabilities Statement (if accounting on a receipts and payments basis).<\/p>\n\n\n\n<p>This calculation should include designated funds, which are a type of unrestricted fund.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"481\" src=\"https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-12-1024x481.png\" alt=\"key financial metrics: liquidity cover data in ExpensePlus\" class=\"wp-image-5409\" srcset=\"https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-12-1024x481.png 1024w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-12-300x141.png 300w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-12-768x361.png 768w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-12-370x174.png 370w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-12-760x357.png 760w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-12.png 1090w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<p>You will also need to calculate:<\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"458\" height=\"60\" src=\"https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-13.png\" alt=\"key metrics: equation for calculating average monthly expenses\" class=\"wp-image-5410\" srcset=\"https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-13.png 458w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-13-300x39.png 300w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-13-370x48.png 370w\" sizes=\"auto, (max-width: 458px) 100vw, 458px\" \/><\/figure>\n\n\n\n<p>For example:<\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"741\" height=\"64\" src=\"https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-14.png\" alt=\"key metrics: equation for calculating average monthly expenses with example\" class=\"wp-image-5411\" srcset=\"https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-14.png 741w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-14-300x26.png 300w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-14-370x32.png 370w\" sizes=\"auto, (max-width: 741px) 100vw, 741px\" \/><\/figure>\n\n\n\n<p>The formula to calculate liquidity cover is:<\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"467\" height=\"63\" src=\"https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-15.png\" alt=\"key metrics: equation for calculating liquidity cover\" class=\"wp-image-5412\" srcset=\"https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-15.png 467w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-15-300x40.png 300w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-15-370x50.png 370w\" sizes=\"auto, (max-width: 467px) 100vw, 467px\" \/><\/figure>\n\n\n\n<p>In this example:<\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"617\" height=\"65\" src=\"https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-16.png\" alt=\"key metrics: equation for calculating liquidity cover with example\" class=\"wp-image-5413\" srcset=\"https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-16.png 617w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-16-300x32.png 300w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-16-370x39.png 370w\" sizes=\"auto, (max-width: 617px) 100vw, 617px\" \/><\/figure>\n\n\n\n<p>In this example, the charity has roughly 3.5 months of cash in hand.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-free-reserves\">Free reserves<\/h3>\n\n\n\n<p>An alternative metric to use is <strong><em>free reserves<\/em><\/strong>.<\/p>\n\n\n\n<p>To calculate this metric, you will need to know the amount of <strong><em>Unrestricted Net Assets<\/em><\/strong> held by the charity.<\/p>\n\n\n\n<p>This figure is easy to find on your charity\u2019s <a href=\"https:\/\/expenseplus.co.uk\/fund-accounting\/what-is-the-balance-sheet-in-charity-accounts\/\" type=\"link\" id=\"https:\/\/expenseplus.co.uk\/fund-accounting\/what-is-the-balance-sheet-in-charity-accounts\/\" target=\"_blank\" rel=\"noreferrer noopener\">balance sheet by fund report<\/a> (if accounting on an accruals basis) or your Assets and Liabilities Statement (if accounting on a receipts and payments basis).<\/p>\n\n\n\n<p>This calculation should include designated funds, which are a type of unrestricted fund.<\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"940\" height=\"600\" src=\"https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-17.png\" alt=\"key financial metrics: free reserves - net assets data in ExpensePlus\" class=\"wp-image-5414\" srcset=\"https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-17.png 940w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-17-300x191.png 300w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-17-768x490.png 768w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-17-370x236.png 370w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-17-760x485.png 760w\" sizes=\"auto, (max-width: 940px) 100vw, 940px\" \/><\/figure>\n\n\n\n<p>However, some of the charity\u2019s unrestricted funds may not be readily available for spending, because spending these funds would adversely impact the charity\u2019s ability to deliver its aims.<\/p>\n\n\n\n<p>An example of this is <a href=\"https:\/\/expenseplus.co.uk\/fund-accounting\/fixed-assets-charity-accounting\/\" target=\"_blank\" rel=\"noreferrer noopener\">Fixed Assets<\/a>. For example, if the charity were to sell its building, minibus, laptops etc., this would adversely affect its ability to continue delivering its aims and objectives.<\/p>\n\n\n\n<p>Therefore, <strong><em>Fixed Assets <\/em><\/strong>are subtracted from the <strong><em>Unrestricted Net Assets<\/em><\/strong> when calculating free reserves.<br><\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"940\" height=\"600\" src=\"https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-18.png\" alt=\"key financial metrics: free reserves - net assets calculation data in ExpensePlus\" class=\"wp-image-5415\" srcset=\"https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-18.png 940w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-18-300x191.png 300w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-18-768x490.png 768w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-18-370x236.png 370w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-18-760x485.png 760w\" sizes=\"auto, (max-width: 940px) 100vw, 940px\" \/><\/figure>\n\n\n\n<p>The formula to calculate free reserves is:<\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"630\" height=\"38\" src=\"https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-19.png\" alt=\"key metrics: equation for calculating free reserves\" class=\"wp-image-5416\" srcset=\"https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-19.png 630w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-19-300x18.png 300w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-19-370x22.png 370w\" sizes=\"auto, (max-width: 630px) 100vw, 630px\" \/><\/figure>\n\n\n\n<p>In this example:<\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"875\" height=\"39\" src=\"https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-20.png\" alt=\"key metrics: equation for calculating free reserves with example\" class=\"wp-image-5417\" srcset=\"https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-20.png 875w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-20-300x13.png 300w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-20-768x34.png 768w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-20-370x16.png 370w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-20-760x34.png 760w\" sizes=\"auto, (max-width: 875px) 100vw, 875px\" \/><\/figure>\n\n\n\n<p>You may also need to make further deductions for:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>any designated funds set aside to meet essential future spending, such as funding a project that cannot be met from future income<\/li>\n\n\n\n<li>any financial commitments that aren\u2019t shown on your balance sheet (and therefore haven\u2019t been included as liabilities on your balance sheet).<\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-reserves-policy\">Reserves policy<\/h3>\n\n\n\n<p>It is recommended that charities have a <a href=\"https:\/\/expenseplus.co.uk\/fund-accounting\/what-level-of-reserves-should-a-charity-hold\/\" target=\"_blank\" rel=\"noreferrer noopener\">reserves policy<\/a>. A reserves policy states the amount of money the trustees aim to hold in reserve.<\/p>\n\n\n\n<p>It\u2019s up to each charity to set its own reserves policy, and this will vary between charities.<\/p>\n\n\n\n<p>For many charities, the reserves are held in a separate designated fund, as it\u2019s often a helpful way to ensure that sufficient funds are held in reserve, should they be needed.<\/p>\n\n\n\n<p>It also makes it easy to view the amount of free reserves the charity has, over and above the amount of reserves set aside.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"421\" src=\"https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-21-1024x421.png\" alt=\"key financial metrics: reserves and free reserves data in ExpensePlus\" class=\"wp-image-5418\" srcset=\"https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-21-1024x421.png 1024w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-21-300x123.png 300w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-21-768x316.png 768w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-21-370x152.png 370w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-21-760x312.png 760w, https:\/\/expenseplus.co.uk\/fund-accounting\/wp-content\/uploads\/2026\/02\/image-21.png 1090w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<p>Typically, charities should review their <a href=\"https:\/\/expenseplus.co.uk\/fund-accounting\/what-level-of-reserves-should-a-charity-hold\/\" target=\"_blank\" rel=\"noreferrer noopener\">reserves policy<\/a> at least annually. Where a charity has a separate reserves fund, it\u2019s important to recalculate average monthly expenditure at least annually, as costs may have increased (or decreased).<\/p>\n\n\n\n<p>Once this calculation has been made, a charity would then move money between funds so that the reserves fund reflects the amount set out by the policy.<\/p>\n\n\n\n<p>A charity holds reserves to ensure continuity in several scenarios \u2013 for example, if its income reduces, or funding doesn\u2019t come in as expected, or to cover any unexpected costs, or for emergencies.<br>Holding sufficient reserves also provides donors and grant funders with confidence that the charity is financially secure, and is being well-managed.<\/p>\n\n\n\n<p><em>Questions for your team:<\/em><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><em>How much does your charity hold in cash reserves?<\/em><\/li>\n\n\n\n<li><em>Does your charity have a reserves policy?<\/em><\/li>\n\n\n\n<li><em>Do you hold the level of reserves set out in your reserves policy?<\/em><\/li>\n\n\n\n<li><em>Do you have a separate designated reserves fund to help ensure that sufficient money is set aside as reserves?<\/em><\/li>\n<\/ul>\n\n\n\n<h1 class=\"wp-block-heading\" id=\"h-further-resources\">Further resources<\/h1>\n\n\n\n<ul class=\"wp-block-list\">\n<li><a href=\"https:\/\/expenseplus.co.uk\/fund-accounting\/basics-of-charity-budgetingcreating-a-budget-a-practical-guide-for-churches-and-charities\/\">Creating a Budget \u2013 A Practical Guide for Churches and Charities<\/a><\/li>\n\n\n\n<li><a href=\"https:\/\/expenseplus.co.uk\/fund-accounting\/understanding-key-charity-financial-reports\/\">Understanding Key Charity Financial Reports<\/a><\/li>\n\n\n\n<li><a href=\"https:\/\/expenseplus.co.uk\/fund-accounting\/financial-risk-management-charities\/\">Financial Risk Management for Charities and Churches<\/a><\/li>\n\n\n\n<li><a href=\"https:\/\/expenseplus.co.uk\/fund-accounting\/what-level-of-reserves-should-a-charity-hold\/\">How much should our charity hold in reserve?<\/a><br><\/li>\n<\/ul>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n","protected":false},"excerpt":{"rendered":"<p>Understand the key financial metrics for charities and churches. Track these to ensure your charity&#8217;s efficiency and maintain sustainability.<\/p>\n","protected":false},"author":1,"featured_media":5425,"comment_status":"closed","ping_status":"closed","sticky":true,"template":"","format":"standard","meta":{"footnotes":""},"categories":[35],"tags":[],"class_list":["post-5396","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-fund-accounting"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v27.4 (Yoast SEO v27.4) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>Key financial metrics every UK charity should know<\/title>\n<meta name=\"description\" content=\"Understand the key financial metrics for charities and churches. 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