Plenty of Disasters to Go Around

by Mark Johnson, ECCU Executive Vice President
(Originally published as a post within ECCU’s former e-publication, The Buzz.)

Hurricanes in the Gulf of Mexico. Firestorms across Southern California. The nation’s economy reeling with a 40 percent drop in the stock market and rising unemployment. Yes, disasters happen, and our ability to respond effectively to them depends heavily on how well we have prepared for the unexpected.

To help ministries prepare to respond to economic changes, ECCU partnered recently with the Evangelical Council for Financial Accountability (ECFA) and the certified public accounting firm of Capin Crouse. Together we presented a series of Financial Forums for Ministries** in six metropolitan areas around the country. Nearly 600 ministry leaders attended these events. Our objective? Provide updates and address challenges in financial arenas ranging from legal and tax issues to the troublesome economy and likely implications for ministries.

We also listened to what these ministry leaders were saying. Without complex statistical sampling techniques, here’s a smattering of what we heard:

  • The current economic crisis really does play out differently across the country – due to regional differences in factors like unemployment rates and magnitude of foreclosures.

  • If 2008 revenues are up at your ministry, you are probably one of less than 10 percent of ministries with this experience. More than 90 percent of those we met were expecting revenues to be flat or down by the end of 2008.

  • Some ministries are delaying capital projects for expansion in light of the uncertain economy.

  • While there is a general sense of hope, most ministries are realizing the need to cut expenses. What is less certain for many is just how to go about that process.

  • Most ministries don’t prepare a cash flow forecast and are therefore missing a possible early warning signal of potential income shortfalls.

  • Many appreciated a method we presented for assessing the adequacy of their liquidity. (See the white paper Liquidity: How Much Is Enough? for details.)

  • Some ministries don’t have adequate cash reserves. As a result, the unexpected decline in income has forced sudden staff layoffs and prevented some from meeting contractual commitments.

Finally, as the weeks passed from the first Forum in September to the last one in November, we saw an increasing number of ministries being financially affected by the struggling economy. The takeaway for ministries was clear. It’s not too late for your ministry to prepare by doing a cash flow forecast, determining an adequate level of cash reserves, and beginning to build those needed reserves.

Yes, there are plenty of disasters to go around, and none of us has the power to prevent most of them. However, by taking these steps, you may be better prepared to weather the current financial crisis.

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