Did you know that we found a direct correlation between a ministry becoming financially distressed and maintaining adequate cash reserves? Certainly makes sense that if you have a buffer, your ministry is less likely to focus on survival. So why don’t more ministries maintain adequate reserves?
Just as in our personal lives, putting money aside takes intentionality and discipline. Helping a ministry understand why cash reserves are so important is a first step in this process. Here are the three main reasons a ministry needs to maintain cash reserves:
Cash Flow Fluctuation. Revenues and expenses don’t always match up (or come in and go out at the same time). For example, many ministries will get a significant amount of donations at year-end and need to rely on those funds to pay expenses that occur during the remainder of the year.
Unplanned Events. We all know “things” happen that we haven’t planned. Even the best prepared budgets don’t anticipate everything that might occur. Having cash reserves set aside is critical to being able to cover these items when they occur.
Potential Opportunities. What opportunities, if presented, would you want the ability to act on immediately? To take advantage of a God-given opportunity, you will most likely need access to some funds before you have time to raise them.
Just as each ministry’s mission is unique, the appropriate amount of cash reserves is also unique to each ministry. It takes discipline to determine your ministry’s needs. Start now, or you may experience unnecessary pain and risk troublesome problems that could have been prevented.
Check out our white paper Cash Reserves: How Much Is Enough? It will help your ministry determine what level of cash reserves is appropriate for your ministry.