Cash Reserves: Why They Are Essential and Where to Start

(Originally published as an article within ECCU’s former e-publication, Ministry Banking Today.)

“As a result of ministries failing to have liquidity, they’ve gone from mission-driven to survival-driven. Lack of liquidity will forcefully change your ministry from your mission and vision to simply surviving.”

—David Lee, ECCU Ministry Development Officer

Setting aside reserves for your ministry is like following a personal budget on a macro scale. If you are unprepared for the unexpected—be it an opportunity or a challenge—it could jeopardize the viability of your ministry.

In his book More Money for More Mission, Peter Brinckerhoff says, “As a steward, your job is to make decisions each day to make your non-profit more mission-capable.” The decisions you make about setting aside reserves undoubtedly affect how capable your ministry will be to pursue its mission.

With the need for benevolence greater today than ever before, you may literally have the harvest knocking on your door. Can you answer? Does your ministry have the cash to meet practical needs when your community comes to you for help? Whether it’s providing financial assistance or expanding ministry programs, are you prepared for such unplanned opportunities? If not, here are some critical steps you can take to get your ministry on the road to building sufficient cash reserves.

“What are we here to do?” When planning your cash reserves target, the temptation is to ask “How much is enough?” Rather than targeting your liquidity, identify the core activities that you’d want to continue if funds were to nose dive. Anticipate the types of events that could take your ministry off track from its core mission. Then, build your reserves to give you the flexibility to pursue the most mission-critical opportunities and events, rather than being forced into one that doesn’t align with your mission.

“Whose opinion matters?” If you are debt-free, liquidity is technically of concern only to your ministry. But if you have debt, it becomes your lender’s concern as well. In this case, begin by engaging in a discussion with your financial institution to ask what level of reserves they are comfortable with. Find out what they consider to be a healthy level of reserves and ask if they have services to help you pinpoint a goal that’s right for your ministry. Even if you don’t have a loan, your financial institution can still work with you as a partner in building adequate liquidity.

“We’ve never missed a payment.” While this is certainly good news for both you and your lender, it does not necessarily mean that your ministry is financially stable. Making your payments is only one indicator of financial health. Just like a physical check-up with your doctor, it is wise to get a good pulse on the overall financial health of your ministry by meeting with a professional. Check with your financial institution to see if they can help evaluate your ministry’s financial performance to identify healthy signs and ratios, as well as areas that need attention. Determining the financial health of your ministry will help you accurately identify an appropriate cash reserves target. And, as long as the economy is uncertain, keep closer tabs on the financial pulse of your ministry. Once-a-year evaluations are a good rule of thumb, but if your ministry’s financial health is struggling, you probably need more frequent check-ups.

Ready to get started? Check out the ECCU white paper Cash Reserves: How Much Is Enough? You can also meet with an ECCU ministry development officer to evaluate your liquidity needs and calculate a cash reserves target. There’s no cost for this consultation. To set up an appointment, call 800.288.4846.


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