Featured Columns

Written by Dan Busby
From his column God, Government and Me—Money in the Church

god-government-me-07-17_article.jpgIs your church financially healthy? How do you know? Who cares?

The top indicators of overall financial wellness can and should vary by church. Why is this so? For starters, the key measures should be directly tied to a church’s progress in achieving its own underlying mission and goals. And because these differ in some way for every church, so too do the indicators of financial health.

Your congregation, staff leadership, and board or committees all look at financial wellness from somewhat different perspectives, but there are some common threads. Let’s consider them (in no particular order).

1. Is there sufficient cash to cover designated gifts? Churches should identify the cash necessary to fund unexpended designated (or restricted) gift balances. In other words, if $50,000 has been contributed for an expansion of the church facilities, is there $50,000 in the church’s bank account in addition to cash for operating purposes? Having adequate cash to cover unexpended designated gifts is fundamental to faithful stewardship over these funds.

2. Are there adequate operating cash reserves? Is there enough cash to cover all of the restricted (temporary or permanent) net assets? During tight financial times, it can be easy for a church, even unintentionally, to borrow against giver-restricted net assets for operating purposes. This creates a problem because it could result in the church being unable to satisfy the wishes of donors in a timely manner.

Churches must make cash reserves a priority if they desire to honor God in the management of finances.

At the lowest cash point in the year (typically the end of summer), does the church have at least two-to-three months of operating cash on hand in addition to the cash for donor-restricted assets? If the church has debt, the number of months of operating cash is likely in addition to funds for mortgage reserves.

Churches must make cash reserves a priority if they desire to honor God in the management of finances. These reserves play an important part in giving the world the right impression of God!

3. Is church debt at a reasonable level? “Reasonable” depends on the size of the church, whether it is growing or in decline, giving trends, and more. While the appropriate level of debt varies across churches, we all understand the more debt a church has, the less flexibility it has financially, and the greater risk involved if there is an unexpected decline in revenue.

4. Is the percentage of total compensation to total operating expenses (exclusive of expenses related to restricted gifts) at a reasonable level? This usually ranges anywhere from 35 to 60 percent, with the most common being around 50 percent of total compensation to total operating expenses. Again, there is not one right or wrong here—the percentage just needs to be appropriate for a congregation’s overall financial philosophy and goals. The higher the percentage, the more likely a church will be forced to lay off staff in a downturn. On the other hand, the lower the percentage, the more likely a church is inadequately staffed.

5. Do the trends in giving reflect a healthy congregation? What are the giving trends for the current church year as compared with those of the previous year or years? Are new givers joining the ranks of the church faster than established givers are leaving? Is there a positive trend in the annual amount given per person/family unit? Are designated gifts driving church programs or are they complementary to undesignated gifts? These are all good questions to ponder.

Church financial wellness is vital. Proper oversight engenders trust on the part of our congregation/givers and sends a message to those around us that represents Christ and His Church well.



by Dan Busby

Our church records designated gift revenue separately from general offerings. However, we simply assume that the money is all being spent for the designated purposes. In other words, we do not separately track designated expenses. Is this acceptable?

No. Unless a church tracks expenses related to designated gifts, there is no way to document that the funds were appropriately spent. By tracking both designated revenue and expense, you have the basis to prepare a very important monthly summary with the following columns: (a) Balance of unexpended designated funds at the beginning of the month, (b) Designated gifts received during the month, (c) Designated gifts expended during the month, and (d) Unexpended balance of designated funds at the end of the month.

We frequently run out of operating cash at our church. Sometimes we even borrow from unexpended designated funds just to cover the payroll for our pastor. What steps can we take to get out of this bind?

As hard as it may be, your next budget should project more revenue than expense. It’s simply a fact—a church will never generate cash reserves if the cash coming in always equals the cash going out.

Perhaps you do not have to wait until the next budget. There are usually some expenses that can be cut. For example, does a church really need two office copiers? Could the church get by with just one instead of two mini-vans? In most cases, there are ways in which expenses can be trimmed if we will look for them. Creating reserves is about increasing revenue, decreasing expenses, or both.

Dan Busby is a certified public accountant and president of the Evangelical Council for Financial Accountability (ECFA).

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