One Size Does Not Fit All
(Originally published as an article within ECCU’s former e-publication, Ministry Banking Today.)
In early May, federal regulators released results of financial stress tests designed to determine the solvency of the nation’s 19 largest banks should the economy continue to worsen. While the usefulness and credibility of the results came under much scrutiny, the real problem emerged when some began to apply the same testing methodology used on large banks to measure the fortitude of smaller community banks.
This one-size-fits-all approach to risk assessment is akin to taking your best friend’s measurements to determine your suit size…it just doesn’t fit.
This got us thinking…is this penchant for comparison happening among ministries as well? Are ministries testing their own strength by standards better applied to a larger—or smaller—organization? Are churches using benchmarks more applicable to parachurches, and vice versa?
A true assessment of your ministry’s ability to weather a financial crisis is dependent on your geographical location, size, ministry focus, and hundreds of other factors. So where do you begin? Paul Clark, executive pastor of operations at Fairhaven Church in Centerville, Ohio, helped create a cheat-sheet to get you started.
- What are our cash reserves?
- If short-term cash is needed, what are our options? (i.e., line of credit, liquidating investments, etc.)
- What areas of our operating budget can be reduced?
- What areas of our personnel budget can be reduced? (i.e., personal benefits, plan benefits for disability, retirement contributions, or adding less expensive tiered health insurance options)
- What accounts are discretionary and what accounts are fixed?
- What accounts yield possible savings? Can we outsource something, sell something, bring something in-house, or enlist volunteers?
- Can we renegotiate our mortgage terms to reduce monthly expenses?
- What new ministries should we forego or delay until the economic environment improves?
- What kind of expense-cutting decisions are on the table and what are not? (i.e., we will not lay off staff)
- How are we performing against our budget so far this year? If we are over budget, is there a systemic or process-related problem that must be fixed to gain control of our spending?
- What approval mechanisms should be in place to give us greater control over spending decisions?
- Are we making maximum use of invoice terms to stretch our dollars as far as possible without hurting our credibility?
- How can we demonstrate to those we serve and to our financial supporters that we are being fiscally responsible, and how can we communicate that in a positive way?
Even if your ministry is stable now, there is no better time to conduct your own financial stress test. In today’s changing economy, it is better to plan now rather than to react when a crisis hits.
To learn more about preparing your ministry to weather a financial storm, check out Paul Clark’s blog entries on Budgeting in Difficult Economic Times and ECCU’s white paper, Managing Ministry Funds during Tough Economic Times.