As Dr. John Zietlow aptly put it, “Oh, if we had only known how deep this recession would be, how long its after-affects could linger, and how pronounced its effects on givers might be, we would have held more in cash reserves.”1
Determining how much cash reserves are needed can be difficult and often feels like a shot in the dark. Plus, it is not a “one-size-fits-all” issue. What is “enough” for one church may be too much or not enough for another church.
There are a few concepts that may form a common thread for your consideration of the adequacy of church cash reserves:
- God is sovereign and He will provide. However, setting aside little or no reserves ignores the biblical admonition of our responsibility to plan and set aside resources for lean times. A healthy tension exists between these two biblical truths.2
- Cash and cash equivalents (savings accounts, for example) are generally considered as “cash” for purposes of considering cash liquidity.
- Liquidity is often measured in the number of months of cash. If the church annual operating budget is $300,000 and the cash balance is $25,000, the church has one month of cash in reserves.
- Donor restricted funds should be subtracted from the cash balance when determining cash reserves. If the church has $75,000 of cash on hand but $30,000 of the cash relates to gifts given for the church building fund, the operating cash reserves are only $45,000.
- Cash flow fluctuations are a reality for churches. For example, the summer months are often lean cash months for churches.
- Unplanned events should be considered. The sudden loss of key leaders or donors are just a couple examples of unplanned events.
- Cash reserves may be necessary to take advantage of opportunities. These may include new ministry opportunities or the open door to hire a new staff leader.
Even though it may be challenging to reach an agreement on the cash liquidity issues for a church, it is worth the effort. It simply part of proper planning!
If you are interested in learning more about church cash reserves, I invite you to join me on July 14 as I talk with three experts on this topic. We will be conducting a Cash Reserves and Liquidity Webinar on July 14 with Mark L. Jones, vice president and senior banking consultant for the Evangelical Christian Credit Union (ECCU), Jeremy Moser, chief financial officer for Mariners Church in Newport Beach, California, and Jon Roberts, Mission Hills Church in Littleton, Colorado.
One of many lessons churches have learned from the recession is the importance of liquidity—having cash reserves available when you need them. Without adequate liquidity, the pursuit of your church’s mission may be in jeopardy.
Click here to register.
1 Building the Oil Supply and Stocking the Storehouse, Dr. John Zietlow, Focus on Accountability, Second Quarter, 2011
2 Cash Reserves: How Much is Enough, Mark L. Jones, Evangelical Christian Credit Union, https://www.eccu.org/assets/white_paper_pages/8/pdfs.pdf