Business Advice for Church Leaders: Cash Reserves for a Church

I get emails —

Hi Jay. I frequent your blog and enjoy your thoughts. Although I don’t always agree I find your blog very thought provoking and helpful. For example, we now serve communion from the back of the auditorium!

I also have a copy of your tax and financial advice for elders. Do you have a recommended percentage of contributions that should be kept for emergencies? We try to be prudent about this but I also don’t think we should hoard money. My father, who once served as an elder, recommended at least one months contributions. What what be your advice?

Anyone who has monthly bills — including churches — needs to keep some cash in reserve. I agree that I don’t like for churches to carry large cash balances — because that money was given to be used for the Kingdom, not to be hoarded or to endow the church. Invest in God’s Kingdom!

But you’ve got to make payroll and pay your bills every month, even if contributions are down or there’s a disaster — such as a hurricane — and around here, memories of Katrina and F5 tornadoes that hit churches are very fresh. And not many churches carry business interruption insurance.

And most churches have suffered a significant loss in contributions lately, because of the recession. Those with no excess cash have had to make some pretty painful cuts.

Carrying an adequate cash reserve gives the elders the ability to wait out a temporary downturn before cutting staff. And having a few dollars available lets you handle financial emergencies — for members, for the community, etc. What if an F5 tornado hits your town and you need to buy 100 cots on a Friday night to house friends and neighbors?

But, as I said, I don’t believe in large cash reserves. In many (not all) congregations, you can count on your members to pitch in when the occasional emergency hits. You have to balance the willingness and ability of the members to pitch in for an emergency with the need of having some cash on hand to carry you through the lean months and occasional financial emergency.

So it’s a judgment call. One month is an absolute minimum. Two or three months of expenses would be much better. And you would prudently create a depreciation reserve or building fund to handle the inevitable leaking roof or broken air conditioner. The alternative is a standby line of credit with your bank — but when you draw on the line, you have to find a way to pay it back. As many of my clients learned lately, when times get tough, banks sometimes cut off credit lines. Nothing spends like cash.

One final note: sometimes you have to spend your reserve. I mean, what’s the point of having the reserve if you’d rather lay off staff and leave hurrican evacuees homeless than spend it? Don’t let the reserve become an idol. But if you spend it, treat like you borrowed it from the bank and pay it back soon.