ECCU Blog

This one is for all the churches out there. We just read a great blog post over at blog.yourchurch.net (a great resource for church leaders). Having experienced two consecutive years of financial upheaval, many churches (and other ministries) are thinking ahead to 2011. But what does 2011 hold?

In the excerpt, “Should Churches Increase 2011 Budgets?” currently posted at the Your Church Blog (the full article can be found on the Christianity Today website), it looks like several financial thought leaders are hesitant. And, while it’s impossible to predict the future, there are steps your church can take to prepare for next year.

One way, as you may have read in our previous post, is to set a liquidity target. Mark Jones emphasizes the need for ministries to start thinking about liquidity and cash reserves. That way you’re prepared for the future, even if giving continues to dip.

In the meantime, as our good friend Dan Busby stated in the Your Church Blog post, we’ll attempt to retain our “cautious optimism.”

Have you noticed how every area of expertise has its own vocabulary? Like car guys talk about horsepower and Bible translators talk about linguistics. So ministry banking guys talk about cash reserves and liquidity management, especially these days.

Maybe you’re not as fluent in this financial lingo as some, so I sat down with a real ministry banking guy, Mark Jones, and asked him to translate. Mark is a vice president and senior banking consultant here at ECCU.

Ministry Banking Guy: Mark, let’s start with liquidity management. If you had 25 seconds to tell somebody on an elevator what it is and why it’s important, what would you say?

Jones: Liquidity simply means available funds. The goal of liquidity management is to have enough funds available for current expenses and new ministry opportunities. Managing liquidity is tougher than it seems because income doesn’t always come in when expenses need to be paid. And we always have unexpected expenses.

In the U.S., inadequate liquidity is the main reason small businesses fail. At ECCU, we work with over 2,000 ministries, and for those experiencing financial problems in this economy, inadequate liquidity is a primary issue.

MBG: What if someone says, “But we can’t manage liquidity because we never know how much revenue will come in each week or month”?

Jones: No one can precisely predict income, but you can make good estimates. Start by looking at your past three years’ revenues and current income trends. This can help you predict future income. You also need to know how the economy is impacting your donors. You can use this data to create a cash flow forecast, which will help you determine whether you will have enough cash when you need it.

MBG: And what do you say to the person who thinks the way they manage liquidity is by spending every dollar that comes in on ministry?

Jones: People often follow this up with something like, “God will provide,” which is true, but the Bible also teaches us to set aside resources for lean times. There’s a healthy tension between these two biblical truths. The reality is, poor liquidity management can hinder a ministry’s pursuit of its mission.

MBG: Okay, how about cash reserves? What are they and what are they for?

Jones: Operating cash reserves are set aside for three main purposes—cash flow fluctuation, unplanned expenses or events, and potential opportunities. Funds earmarked for cash flow fluctuation are there to keep the ministry operating when expenses exceed income. As for unplanned expenses or events, a sudden loss of a key donor would be an example. Potential opportunities are things that align perfectly with your mission but aren’t in the budget.

You should also have a separate replacement reserve fund for things like resurfacing the parking lot or replacing an air conditioner.

MBG: Last question. What do we do if we figure out how much cash reserves our ministry should have but we just don’t have it?

Jones: The goal of going through the process I’ve just described is to identify a target liquidity balance. To better understand how to calculate that target and begin building reserves, I’d recommend reading our white paper, “Cash Reserves: How Much Is Enough?” And ECCU’s ministry development officers are always available to consult with ministries and help them set the right target liquidity balance.

How does your ministry handle the tension between setting aside reserves and using funds for ministry?

An important event on the annual calendar here at ECCU is the National Association of Church Business Administration (NACBA) national conference. It’s happening this week in Orlando. Word from the ministry development officers we have there is that they’re meeting a lot of ministry staff and having great conversations.

If you’re in Orlando…at the Gaylord Palms…look them up and say hi.

If you can’t be at the NACBA conference, here’s a way to listen in on some of the conversation that’s going on. Paul Clark is there. He’s executive pastor at Fairhaven Church in Centerville, Ohio, and one of our favorite bloggers. Check out his latest blog to see what he’s been hearing and talking about. (His blog is listed to the right under “other blogs.”)

I’ve been thinking about what’s new and interesting in the world of ministry financial services, wanting to wow you with fun facts and useful information. Which is why I’m devoting this post to…(drumroll please)…a new ministry report card. Okay, technically it’s called the Borrower Health Assessment, but that doesn’t make your stomach drop the way “report card” does. And it really works like a report card for ministries asking questions like: Are we making wise financial decisions? Are we financially healthy? Will we qualify to refinance when our loan matures? (This last one is most important to many ministries these days.)   

Helping to explain the Borrower Health Assessment is David Lee, ministry development officer for ECCU, and two representatives from ministries that have already benefited from this tool: Dave Beatty from West Bowles Community Church in Littleton, Colorado, and Ross Harrop from Springs Community Church in Colorado Springs, Colorado.

Ministry Banking Guy: What inspired this new tool for ministries?

Lee: Our research has shown that a major concern for ministries today is that they simply don’t know if they are financially sound enough to qualify for a refinance once their 5-year term is up. The tool was designed to help ministries understand—objectively and in laymen’s terms—their own financial health.

MBG: When is the best time for a ministry to take advantage of this tool?

Lee: The Borrower Health Assessment is preventative rather than a treatment tool. Like understanding the symptoms before you have the heart attack. Engaging ministries even two to three years before their loan matures lets them know what they need to work on long before they need to renew. It even gives them time to launch a capital campaign, if necessary, to compensate for things like declining property values.

Beatty: We used this tool three years before our renewal, and it prompted us to pare back our budget and look hard at personnel costs. We now look carefully at our numbers on a monthly basis, preparing us to pass with flying colors when it comes time to renew our loan.

Harrop: For us, we got the information too late. Our lender at the time was saying, “We like you….but there are some yellow caution flags with renewing your loan.” Then we were referred to ECCU, and David (Lee) offered us the Borrower Health Assessment. While the results aligned with our other lender’s feedback, the difference was that ECCU was objective, not trying to persuade us to do anything, but just saying, “Here is what we see.” It really helped us understand our strengths and weaknesses.

MBG: So, why doesn’t every ministry borrower just ask their lender for this pre-underwriting evaluation?

Lee: You can’t just talk to any lender to get the best pulse on your financial health. They don’t all understand the financial realities of a church or ministry.

Harrop: ECCU not only understands our belief system, but they also get the business side of ministry. So, when David came along with a tool that took an unbiased look at our budget and financials and could objectively explain why we did not have a sustainable financial model…I realized I have a partner in ministry. ECCU helped us bring a business sense to our decision making. We finally understood that a budget is simply ministry expressed in dollars.

Beatty: We used to go to our lender and ask these questions. Our former lender would say, “Here’s what you should have done.” ECCU was much more proactive. They said, “Here’s what we need to do together; here’s what we’re forecasting….” Going through the pre-approval process was hugely helpful. They walked through it with us.

MBG: What advice do you have for ministries approaching a loan renewal?

Beatty: Get a good picture of what you need to qualify for your renewal and maintain your lending relationship. There should not be any surprises. The Borrower Health Assessment—combined with a working relationship with someone who can walk you though it—is extremely valuable. One without the other may not be as effective. Anyone can generate numbers and say, “Look at this and take an inventory of how you’re doing.” But actually sitting down and talking with someone about it? That’s excellent.

Harrop: Get objective information on the health of your ministry. ECCU did not tell us what to do, but gave us information they had compiled from national percentages, allowing us to compare to some of the most successful churches. This put things in the spotlight for us, giving us financial clarification that we had never experienced before.

Lee: It sounds cheesy, but ask yourself, “Have we had our fiscal?” Your ministry should assess its financial health annually—even monthly—just like you should assess your own personal health long before problems arise. Talk to ECCU about using the Borrower Health Assessment and treat any ailments now, before it’s time to renew your loan. Whether you’re an ECCU member or not, if we can help your ministry become better aware and more in tune with what is healthy financially, then we have fulfilled our mission.

Welcome to the new Evangelical Christian Credit Union (ECCU) blog—your single stop for news, ideas, and highlights from the ministry financial management world.

We know you have a lot to read, and plenty of options for what to read, so our goal with this blog is to give you quick and easy access to important information that affects ministry leaders just like you.

We will be posting throughout the week, so be sure to subscribe by e-mail* or by taking advantage of our RSS feed to ensure that you don’t miss out on the latest updates.

You’ll find posts such as:

• Interviews with leaders and financial decision makers of evangelical ministries
• Resource-oriented posts, offering insights on managing ministry finances and tips on how your ministry can respond appropriately to changes in the economy
• Conversational commentary on financial management issues for ministries
• Brief updates on what other ministry leaders are saying or doing on their websites and blogs

On the right, you’ll see pictures of our contributing writers. We hope they become valued partners as you seek to effectively manage your ministry’s money.

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