Cash reserves are your key to facing financial uncertainty
If you’re a church planter, you have plenty of experience with the unpredictable nature of weekly income. At least there’s the upside that you don’t have as many fixed expenses as more established churches. Still, fluctuating income creates plenty of challenges. Here are six big ones.
- Unplanned expenses happen. Who knew your sound board would die so young? May it rest in peace.
- Income fluctuates wildly. As you add people, and as those people learn to faithfully support your church, it’ll take time before giving patterns emerge.
- August is always brutal. People go on vacation and take their tithe with them. Plan accordingly.
- Your meeting place isn’t your meeting place. That cushy facility arrangement you have with the local junior high/community center/dying church will change sooner than you think.
- Tomorrow’s financial picture will be different than today’s. Your needs and expenses today are not what they will be even six weeks from now.
- The temptation to personally cover shortfalls is great. Church planters (and pastors in general) are far more willing to put their personal finances in play to sustain the church in a financial emergency, this can lead to marital strife, which can add to the stress of an already stressful situation.
So how do you handle financial challenges like these and so many others that accompany the good and glorious work of church planting? The answer is one word. It’s what bankers call liquidity. Your term would be cash reserves or savings. And while your liquidity needs will be different from those of a more established church, they are no less critical.
The way an established church would come up with what we bankers call a liquidity target is to do a thorough analysis of the last three year's income and expenses. This exercise would reveal their unique cash flow cycle, which is the basis for developing a plan for how much liquidity they’d need for any given month. It’s different for church planters like you, because you might not even have three month's worth of data, let alone three years.
As a starting point, let’s use the fourth financial challenge listed above as a mini case study. Consider this scenario: Where would you meet this Sunday if you found out today that your current space was unavailable? Could you afford to meet somewhere else? This is an ideal situation to illustrate the importance of having adequate liquidity. At a minimum, your liquidity plan should include enough money to rent a backup meeting site, like the ballroom or conference space at a local hotel, for at least two consecutive Sundays. This means you should already know the events manager there by name and have taken a tour of the facility. This would give you an idea of how you’d do a weekend service there if you suddenly had a facility crisis. A more positive catalyst for this kind of shift would be that your church attracted enough people in a matter of months that you outgrew your current meeting space.
Whether it’s the immediate need to relocate your services or the challenge of replacing a key component of your sound system, the wise approach is always to have funds in reserve to cover those kinds of unexpected expenses. So take time today to make a plan for building up those financial reserves for your church plant. Not only will you be glad you did the next time an unplanned expense hits, but the next time you talk with your banker, you’ll be able to impress her with your command of 50-cent banking terms like liquidity!