How much cash should a church have in reserve? And how to get it
Having undesignated cash on hand is very necessary to the health of a church. I have known both the pain of having too little cash on hand and excess cash on hand and I promise you having excess cash is way better! So how much should you have?
6-8 weeks of operating expenses is considered somewhat healthy
8-12 weeks of operating expenses is considered strong.
Great churches have 36+ weeks of operating expenses in cash reserves on hand
For example: If your church tithing goal is $5000 per week then you wouldn’t want to have anything less than $40,000 in undesignated cash on hand.
Yes, I understand this is easier said than done. But let me offer a couple tips on how to get there.
1. Budget for 90%. When you make your annual budget it should be based on 90% of your previous years income…not 100%. For example if your previous year’s income was $500,000 your new budget should be set for $450,000. That way you reliant on less than will come in. the result should be cash reserve of $50,000 that year.
2. Make it a part of your scoreboard: Each month our goal is that our undesignated cash would grow from the previous month. We don’t have a particular $$ amount for each month due to the variations of each month. We simply want to see it grow. We even have a large scoreboard on our wall that tracks this number and it’s one of the metrics that we talk about at board meeting each month. This helps to make it something we value and achieve.
Why have cash reserves on hand?
1. The best things in ministry happen in the margin: Having cash on hand allows you to explore ministry ideas and opportunities as they arise. Think about your own spending. The best things your family experiences are not in the paying of normal bills but when you splurge on a vacation or a night out. When Gd brings an unplanned opportunity to your church its awesome to be able to join in God’s work. Having cash reserves makes this possible.
2. Protection: With cash reserves you are protected from income shortfalls that may come with the loss of tithing members (death, moving, etc..). You are also protected should you need to cancel a service due to inclement weather (and we all know those Sundays can be a big financial hit). You are also protected from unexpected expenses (last year we had 2 air conditioners stolen and had to pay the insurance deductible to get them replaced).
Two problem areas
1. Low cash reserves: You may be exercising great faith but you are placing yourself in a vulnerable position. If an ministry opportunity comes along that you’d like to do you wouldn’t be able to do it. Not the mention of the risk of missing payroll and being late on bills.
2. Excessive cash reserves: This probably doesn’t happen often but a church can have so much cash on hand that they may have neglected the ministry work that God had for them.
