Jul
29
2011

Finance Fridays: Cash Reserves- What’s Enough?

An article by Jeremy Moore

Over the past few years I’ve seen a lot of struggling churches.

I’m always looking for the common problems.

One recurring problem I’ve seen with almost every struggling ministry I’ve worked with is a lack of adequate liquidity management.

We all know it’s prudent to have some savings, but the ministries I’ve seen get into the most trouble have lacked the willingness or ability to set aside savings and live below their income.

Once you make the decision to operate below budgeted revenue the next question is how much savings is enough?

I would suggest you begin by looking at three things:

Cash Flow Fluctuation. The first step is to get a sense of your cash flow history. Look over the last few years worth of your financial data to get a feel for the ebb and flow of your cash balances. Note when your cash balances are the highest, and when they are the lowest (for many churches the summer is the low point of the year). Wise churches will use the variation between the high point and the low point, plus a 25-50% buffer as a starting point for their case reserve.
Unplanned Events. Crazy things happen in ministry all the time, many of them are unplanned. It is a good idea for your church leadership team to invest some time into developing a list of potential unplanned events and the financial impact that it may have on the church. Things like replacing your boiler, loss of a rental property, resignation of a key staff member and others will have a financial impact on your church. Knowing the possibilities and planning accordingly through your cash reserves is a wise decision.
Potential Opportunities. Planning for unexpected opportunities for your church can make a huge difference in your ability to minister to your community. Setting aside some money in your cash reserves for ministry opportunities that surprise you (disaster relief, a request for help from your local schools, or even unexpected hirings) can help you better care for the community that you serve.

While these three points are a great place to start, this whitepaper put out by ECCU will help you develop a deeper understanding of all that goes into developing your cash reserves.

Jeremy Moore was born in Germany to Missionary Parents and grew up in a Pastor’s home. He is married to the love of his life, Erika. He has two boys, Alexander and Benjamin. He holds a Bachelor of Arts in History with minors in Business and Theology from Lee University. He has done graduate and post graduate work at Auburn University, Northwestern University, and Colorado State University. His background as a Merrill Lynch Certified Financial Manager (CFM) and years as Senior Vice President of Commercial Banking at one of the largest Banks in the nation, have given him the base of knowledge which he uses to now exclusively serve non-profits. He specializes in short and long term asset management and acquisition planning and execution, as well as creation and implementation of ministry strategy. He uses his relationships with hundreds of ministry leaders to discover and disseminate best practices in the areas of church and non-profit growth and management.