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.
After the economic crisis that began in 2008 triggered the Great Recession, news media reported countless stories of the impact on individual churches. Few of those stories included trends, because the data simply wasn’t available. Today, the numbers are in, and some of them are surprising.
The School of Philanthropy at Indiana University recently published the findings of a survey they conducted with more than 3000 churches. How did the Great Recession impact churches and how have congregations responded? Here are some key findings.
- U.S.congregations are generally improving financially. However, those with older attendees and those whose clergy are uninformed about congregational giving are experiencing the greatest challenges.
- Despite overall positive trends in fundraising receipts, pledges, and budgeting in 2011, the majority of congregations’ revenues have not kept pace with inflation in recent years.
- Changes in average congregational gift size and the number of donors are the main drivers of fundraising success.
- Congregations are increasing their budgets in the areas of missions and revenue-generating activity.
- Congregations have more work to do in the area of educating congregations on financial planning and charitable giving.
- The majority of congregations employ some type of electronic giving.
Are these findings consistent with what has happened at your church? If you have been successful in one of these areas, to what would attribute your success?
At my church, we weathered the Great Recession well, not that any one of us can take any credit. I do, however, believe that maintaining adequate cash reserves before the recession hit was one critical reason we were able to stay focused on our mission and vision. And by being transparent and letting our congregation know that we would live on what was given, we were able to build trust in a time of uncertainty.
What did your church or ministry do that helped it get through the Great Recession?
I wonder how many ministries had to replace their air conditioning systems during this summer of record-breaking heat. Maybe yours is one of them.
Did you have enough liquid funds to cover that expense, or did you have to come up with those funds another way? Maybe a special fundraising effort, a loan from your financial institution, or “borrowing” funds from another area of ministry?
Even if we do all the scheduled maintenance, things like AC systems and roofs and parking lots and carpeting eventually need to be repaired or replaced. Unfortunately, these expenses create an emergency for many ministry organizations because they don’t have funds set aside for them.
This is why you need a replacement reserve fund. It’s simply good stewardship of capital assets to have an account that’s specifically earmarked for the upkeep of your property, building, and contents.
Are you unsure how to calculate the appropriate replacement reserves? Here’s a good starting point:
- List all the items your ministry must maintain or eventually replace.
- Identify how long each item was expected to last when it was new (useful life in years).
- Determine the remaining life of each item (again in years).
- Determine how much it would cost to replace each item today.
By conducting this type of inventory, you can calculate how much should be in your replacement reserve fund today and how much to add to it each year. Better yet, you’ll avoid jeopardizing important ministry to pay for unexpected facilities expenses.
Need some help? We created a replacement reserves calculator tool that performs these calculations for you. (There’s no charge to use it.)
Have unexpected facilities expenses negatively impacted your ministry? Or have you been able to avoid situations like that because you have had a replacement reserve fund? Post a comment and tell us your story.
One of many lessons ministries have learned in recent years is the importance of cash reserves—having funds available when you need them. Without adequate reserves, the pursuit of your ministry’s mission may be in jeopardy.
A free ECCU webinar recording—Cash Reserves: Why you need them. How to build them.—can help.
By watching this webinar, you can expect to learn:
- What constitutes reserves and why they’re so important for every ministry
- About the process a ministry goes through to set a cash reserves target
- About the struggles and benefits ministries have experienced as they worked to achieve their cash reserve goals
- How an ECCU member ministry builds and manages cash reserves
You’ll also have access to a broad range of financial resources, including: A white paper, online tools, articles, book recommendations, and more.
To watch this webinar recording and access the additional resources, click here.
One thing many ECCU staff members have in common is competency in their area of banking expertise and involvement in ministry. Two who have solid credentials in both areas will team up with a ministry member to present the upcoming cash reserves webinar on May 31, 2012.
David Lee, who will co-present and moderate this webinar, is a ministry development officer who has been serving ministries at ECCU for 20 years. All those years plus one he’s also served on the pastoral staff of a Denver-area church. On the banking side, he’s a Certified Treasury Professional® who is committed to equipping ministries to be more effective at reaching their communities with the gospel.
Mark Jones will co-present with David. He’s a vice president and senior banking consultant at ECCU who has spent 25 years in banking and, like David, is a Certified Treasury Professional®. He has also served on the governing board of his church as elder/treasurer, currently works as the finance director, and is on the leadership council for Missionary Athletes International. Mark specializes in helping nonprofits effectively manage their finances.
Jim Clark will join David and Mark for this webinar. He’s the pastor of business and stewardship at First Evangelical Free Church in Fullerton, California. Jim brought a business background to the church staff in 1999. He leads the areas of finance, human resources, information systems, campus operations, risk management, and stewardship education. Jim is passionate about leadership and organizational development.
The webinar these three will present is called “Cash Reserves: Why you need them. How to build them.” I should mention that you’ll have access to all their expertise at no cost; the webinar is free. You can follow this link to register.