Cash Reserves to Annual Budget
- Definition: Divide Total Unrestricted Cash Reserves by Annual Budget
- Unrestricted cash reserves are also known as Net Cash Assets
- 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
- Results:
- 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.
- 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
- Consequences:
- 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.).
- 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!