While a church’s budget is set and remains fixed throughout the year, actual income and expense flows are not; in some cases, they can vary widely from month to month. For a church, cash flow can make or break its ability to survive. Leaders of financially healthy churches have learned how to manage through revenue peaks and valleys to avoid the consequences of a budget shortfall.
A common problem for churches is the cash flow gap which may signal a potential budget shortfall. When cash shortages start limiting what you can pay for in the areas of ministry, programs, repair and maintenance, and other essential operating costs, it is known as a cash flow gap. Here are five strategies for preventing that budget shortfall:
1. Use common sense practices for your church budget.
What kind of cash flow model do you use? Does it take into account the revenue peaks and valleys that every church experiences? A relatively easy method to develop an income model for the current budget year is to base it on the actual revenue received in previous years. You can safeguard your projections by not increasing your expected revenue.
2. Pay attention to cash flow.
Know how much you need each month to keep your church open. It's your bottom line. Never lose track of how much cash you have in your account. Consult your financial advisor about appropriate financial forecasting tools and services that will alert you to potential cash flow problems.
3. Commit to reserve funds.
Try to have enough to pay regular operating costs for at least three months. Six months is better. How is it possible to find extra revenue? Put a line item for a cash reserve fund in your operating budget. Then, assign any income above the budgeted projection to the reserve fund and commit to increasing the balance.
4. Cultivate healthy credit options.
Churches are not so different than other institutions when it comes to needing short-term credit. A revolving credit line from a bank can solve short-term cash flow problems. Establish a relationship with your lenders early on, before you actually need financing. When you need to request a loan, your face to face relationship with the lending institution will facilitate the process.
5. Review your annual church fundraising strategies.
- Encourage tithing, or annual pledging, and make it easy for people to commit.
- Develop strategies that increase yearly pledge units and size of donations which are more predictable and reliable than plate collections and surprise gifts.
- Provide a variety of ways to make payments: annually, quarterly, monthly, weekly, or at any rate that fits the donor’s situation.
Today there are many online tools and services/apps available to make contributions easy for your parishioners. Learn what they are so that even people who do not carry cash or checkbooks (more and more young adults), can make donations online, with their smartphones, or by other electronic means.
Churches and religious institutions may be Godly sanctuaries, but they are run by very human people who often juggle many roles and responsibilities. When it comes to financial planning, budgeting and dispersing, financially sound churches do it with the guidance of a qualified professional.
Charles P. Myrick is a Washington, DC accounting firm offering specialized CFO services to churches and religious institutions. Myrick CPA was voted Best Accounting Firm in DC, 2016 and 2017, Washington City Paper Readers’ Poll. Request a confidential consultation, today.