10 Financial Ratios (part 6 of 10)

Cash Reserves to Annual Budget

  1. Definition: Divide Total Unrestricted Cash Reserves by Annual Budget
    1. Unrestricted cash reserves are also known as Net Cash Assets
    2. Unrestricted cash reserves do not include donor designated funds, only monies the church has complete spending control over; these reserves can include building reserves and emergency reserves
  2. Results:
    1. Minimum: One month of the annual budget; e.g., if your annual budget is $1,200,000 then you should have at least $100,000 in reserves.
    2. Maximum: Three months’ of the annual budget. Any more than that then you can be considered hoarding and not spending money on God’s mission for your church
  3. Consequences:
    1. Not having sufficient reserves can lead to financial hardships if you have a major building system need (roof replacement, air conditioner or heating system failure, plumbing disaster, etc.).
    2. Having too much in reserves can lead members to give less because they feel “the church doesn’t need my money” or the church is hoarding money.

Now What? So What?

  • Compare your church’s financial ratios to the optimum range for each ratio.
  • Develop a 2-3 year plan to bring your ratios in line with best financial practices.


Lead On!