During tough economic times, we have seen the fallout from having inadequate cash reserves—not only in business, but also in the ministry world. Determining the amount of reserves required can feel like a guessing game. That's why the Evangelical Christian Credit Union (ECCU) offers a three-step education on how to factor the cash reserves that ministries need, plus an online calculator to determine liquidity.
Many leaders of nonprofit organizations live with constantly fluctuating cash flow. An organization may be "profitable" based on its financial statements, yet unable to pay its bills. This occurs because income doesn't always come in when expenses occur.
Many ministry leaders understand the feeling of running on fumes, but are unsure of the steps to take to maintain a full tank of resources. Fortunately, they don't have to experience the domino effect that comes from inadequate cash reserves. Instead, we recommend that ministries begin by determining their cash reserves and liquidity needs based on three areas:
Cash flow fluctuation: For most ministries, an average buffer of 15 to 50 percent would be appropriate. However, each ministry is unique, and this range may not apply to all.
Unplanned events: Ministries should create a list of ongoing and one-time unplanned events that could lower their income or increase expenses and calculate the fiscal impact of these events.
Potential opportunities: This is the place for dreams: new programs, ministries, staff members and more.
In addition to establishing an operating reserves fund, every ministry needs a replacement reserves fund for maintaining and replacing things that wear out and break down around its facilities. This may seem daunting, but there is an easy formula for ministries to incorporate into their financial plan.
ECCU developed a simple online calculator to help ministries determine how much cash to set aside in a replacement reserves fund. This educational tool assists ministries in planning their cash flow and cash reserve needs. These and other tools are available on the ECCU website, plus a wealth of articles to aid missionaries and ministry leaders. Leaders who pursue biblically based financial administration can help to ensure the longevity and fiscal health of their organizations.
Mike Boblit is vice president of Evangelical Christian Credit Union. He manages a team of Ministry Relationship Managers specializing in ministry banking and lending.
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