We have had the opportunity to analyze the financial statements of ministries across the U.S. in the past couple of years and we have found some helpful information worth mentioning.
Of those ministries, nearly 20% were deemed to be in financial distress. This meant that these ministry organizations were past due 60 days or more on payments to vendors in the past year.
The top correlation we found to becoming financially distressed was the amount of cash reserves maintained. 32% of the ministries who maintained less than 51 days of cash reserves became financially distressed. Conversely, 92% of those ministries who maintained over 51 days of cash reserves did not become financially distressed.
Now there isn’t any magic in 51 days of reserves specifically. That is just the number our statistical analysis showed to be a significant threshold. More importantly, each ministry should determine how much is enough for their unique ministry. For most ministries, adequate reserves would be something much higher than 51 days of cash reserves.
Financial distress can and will cause significant harm to your ministry. Active ministry is replaced by a survival mentality, cutting costs wherever you can. While it can be prudent to cut unneeded waste, cutting activities and programs which are critical to your mission takes away from you fulfilling your vision as a ministry.
We have written a white paper entitled, “Cash Reserves: How Much is Enough?” which you can read or send to another friend in ministry. In this, we provide a framework which you can use to determine how much is enough for your ministry. In addition, we offer a free consultation for our members with one of our staff to help them work through a process to discover this important information. Click to view our free webinar recording: Cash Reserves: Why you need them. How to build them.