September 9, 2010
Cash Reserves: Who Needs Them?
Why now is a good time for your church to build a safety net.
Cash reserves. If you’re like me, your eyes glaze over when these two words are used together. It’s certainly not the most exciting topic. But, what we have found through the current economic downturn is that cash reserves are more important than ever for ministries.
Why do ministries need cash reserves? Consider these actual situations:
• During the past winter, I received calls from about 50 churches that were panicked by outrageous heating bills running two to five times their normal averages. Some churches in Charlotte, North Carolina, and Atlanta, Georgia, where snow rarely falls, canceled services some weekends because of snowfall, and therefore took in virtually no offerings.
• The earthquake in Haiti created massive need. Many churches wished they could help but didn’t have the extra cash to do it.
• July was the hottest month on record in some parts of the country. Three churches I work with had to replace multiple HVAC units.
These are just a few recent examples of situations where adequate reserves could have allowed ministries to move forward instead of only wishing they could, or prevented them from having to pull funds from other parts of their ministry to pay unexpected bills.
Building cash reserves is actually not as daunting as it may sound. Churches can increase reserves by increasing revenue or decreasing expenses and not spending the difference.
Beyond that, here are four specific examples of ways a church can get on the path to building adequate reserves:
1) Take a special offering. Highlight a recent need that went unmet due to your church’s lack of reserves. Explain the effects of that situation, and the importance of possessing reserves in the future. Some churches even do short-term campaigns, with the specific goal of building liquidity for unexpected needs and potential opportunities.
2) Use interest-bearing accounts. Most financial institutions offer interest-bearing savings and money market accounts that build upon funds you have saved, even if you’re not adding to them. When Jesus shares the “Parable of the Talents,” in Matthew 25, He uses the example of an interest-bearing savings account as a minimum standard of good stewardship.
3) Create reserves through the budget. By creating and following a budget, your church can build in a monthly margin to transfer to an interest-bearing savings account. This is a smart time of year to begin making these types of budget tweaks for 2011. By keeping the budget conservative and devoting a monthly line item to a cash reserve, the church can position itself to stay on mission, even if giving stays flat.
4) Consider alternate giving channels. Many churches now have online giving, ACH, and even giving kiosks. If your church doesn’t, consider adding one or more of these, but don’t immediately spend any increased income that may develop. Contrary to what many churches do, there is no rule that says you must find a way to immediately spend every new, unexpected dollar that comes in. Put some away for future needs and opportunities.
It’s important for your church to lead by example when it comes to finances. Many congregants struggle financially due to their own lack of reserves. Show them how to prepare for unexpected needs and opportunities, rather than just tell them, by making adequate cash reserves a priority within your ministry. For a more complete picture of cash reserves, you can check out the white paper “Cash Reserves: How Much Is Enough?”
Also, by increasing reserves, and by communicating what you’re doing to your congregation, you also increase the financial credibility you have with your givers by demonstrating good stewardship.