Pros & Cons of Changing Banks

I’m a proponent of using a locally based financial institution for your banking needs. National banks should be for national companies (Red Cross, Apple) but most churches can be served effectively by their local bank. Local banks are usually cheaper (fees are less) and are far more helpful because their leadership lives in the community.

Here is a list I drafted recently for a church that is considering changing banks. I encourage your finance committee to consider moving to a local bank (if you’re not there already).

 Pros

  1. LMNOPbank is headquartered in our community so we’re supporting a local company.
  2. LMNOPbank has a much better reputation for customer service.
  3. LMNOPbank is where the church’s endowment funds are invested so all church funds would be in the same institution.
  4. LMNOPbank is easier to change signatories – take the signature card to the church and get everyone to sign, and then return the card to the bank. SunTrust requires all signatories to appear at the bank on the same day.
  5. Our current bank’s customer service rep for us is located in their HQ which is not located in our state.
  6. LMNOPbank has a courier service which picks up deposits in the church and takes them to the bank.

Cons

  1. Changing banks put a LOT of work on the finance office
    1. Changing all auto-draft payments
    2. Changing payroll drafts
    3. Changing online giving
  2. Changing bank has a cost – buying new checks and deposit slips.
  3. Reconciling several bank accounts for a while.
  4. Waiting for checks to clear from the old bank account.

 Treasurer’s Recommendation: move to LMNOPbank as soon as possible

 Lead On!

Steve

Considerations When Getting a New Copier

  1. Start the process of getting bids for a new/replacement copier about 4-6 months before the current contract expires. It will take about 2-3 months to get the bids in and make a decision. Take delivery of the machine within a month of the end.
  2. Do NOT let a new vendor “eat” the current lease. They won’t eat it, they’ll just add it to the monthly bill. Let the current lease expire or come within 2-3 months of expiration before getting a new one.
  3. Ask other churches for references of companies and copiers they like. Ask those for bids.
  4. Remember, a copier is a commodity. There is essentially ZERO difference between today’s machines. THE difference is in service. Thus, when getting quotes, it is vitally important to talk with the VP/Director of service to ask about the number and types of problems that each machine has. The VP of sales will give you a nice pitch (that’s his/her job) but the VP of service will shoot straight(er).
  5. Get a 48 month lease; 36 months are too expensive and 60 months are too long. By month 42 people are ready to get a new machine; around that time, many machines start breaking down more frequently.
  6. Get a quote for the base model and then get quotes for the add-ons (hole punch, staple, saddle stitch, etc.). Most machines do 11×17; desktop copiers can’t do that but 99% of office copiers do bigger copies.
  7. To figure out how many copies you current use in a moth, ask your current vendor for that info. Most copiers today let the company login and billing info such as how many B&W versus color copies were printed that month. When you ask the company for the totals, let them know you’re putting this contract out to bid. When they know they may lose their copier contract, they’ll work harder to keep the contract.
  8. Get info from the current copier company about the cost of returning a machine if you don’t renew with them. Some companies charge a shipping fee (I’ve paid $750) for old machines. Make sure the new lease doesn’t have that clause.
  9. Financially, I was most satisfied with the leases that made you pay for the copier plus the actual number of B&W/color copies. The old method of building in X thousand copies was simply a way to pad the monthly base fee.
  10. You should pay somewhere in the range of 2/10ths to 1/2 a penny per B&W and 3 to 5 cents per color copy. Anything more than that is wrong.

 Lead On!

Steve

 

Idle Cash

Every church should have one bank account and one investment or money market account. Anything more, except in special circumstances, is unnecessary. Here’s how I feel it should work.

The checking account is where all money is deposited as it is received. All money – no exceptions. The money market account is where the church’s “extra” money sits until it is needed. I know – there is no such thing as extra money. Here’s what I mean – the average church needs about 60 days’ worth of cash in its checking account, at most 90 days. All cash over that should be moved to a money market account where it can earn a little interest.

Then, as money is needed in the checking account, it is transferred from the money market account. And, as the church receives “extra” money (think the December rush) it is transferred to the money market account.

This keeps the church with a solid balance in the checking account and its “idle cash” is earning interest which can be used for the church’s operations.

What are the exceptions? Glad you asked. Here are a few and I’m sure you’ve got others:

  • A capital campaign where you want to have a checking account for that campaign. I suggest you also have a money market account for that account. Then, as you receive the initial, pre-construction influx of money the bulk of that is moved to the money market and then, when the construction bills arrive, the money is moved to the campaign checking account to pay the bills.
  • An account which is used only and entirely for pass-through funds and by having that checking account it will help the bank reconciliation be cleaner and clearer. Here’s an example:
    • An account which is used to receive online gifts from an auction or sale of materials. Having this account means you can more clearly determine a sale versus a gift that in the main checking account. E.g., you receive $20 in the “sales” account you’ll know that was for a book or retreat versus a tax-deductible gift.

Lead On!

Steve

PPP Loan Accounting (corrected version; percentage used for payroll v others)

The SBA is still working on how PPP loans should be reported back for forgiveness. The SBA made changes to the PPP loan guidelines at 9 p.m. the night before the PPP began; they will continue to make changes to the PPP for the duration of the program. In the meantime, there are some accounting practices you can do to record your PPP loan. Once you receive your loan, you have 8 weeks to use it for payroll (at least 75% of the loan), utilities and mortgage interest (no more than 25% of the loan).

 

 

Keep it simple is THE principle. You need to create two new accounts in your chart of accounts. One is a restricted fund on your balance sheet and the other is a new revenue line in your income statement.

  1. New restricted fund – reasons to have this:
    1. That account will show at any given time how much you need to use before the 8 weeks are up.
    2. If you need to return the money, then it is on your balance sheet and not on your income statement.
    3. If you post the entire amount on your income statement at once, it will skew your income for that month.
    4. So that you can show your banker how you used the money explicitly for the intended purpose by gradually transferring money from the balance sheet to the income statement.
    5. Some banks are asking you to open a new bank account but you don’t need to do that, especially since the money will (hopefully) be gone within 8 weeks.
  2. New revenue line – reasons to have this:
    1. The loan is a significant amount of money and you don’t want that amount comingled with your tithes and offerings.
    2. You need to be able to see months and years later what the amount was, especially when your audit comes around.
    3. You can use this revenue line to prove to your banker that you used/transferred funds to your income statement and the funds matched exactly the payroll, utility bills, and mortgage interest.
  3. Receiving the loan
    1. Accounting: enter the loan as a debit to your bank account and a credit to the new restricted fund.
    2. That’s the only credit entry you’ll make to that account – just one deposit. The rest of the entries are withdrawals when the money is used and transferred to the income statement.
  4. Spending the loan
    1. Accounting:
      1. When you make the payments, make a copy of each invoice and payroll register
      2. Then, make a journal entry transferring that exact amount from the balance sheet to the income statement (debit to the new restricted fund and credit to the new revenue line).
      3. That’s it. You’ve now accounted for how you used the loan.
    2. You won’t have any changes to your expense accounts. Pay your payroll, mortgage interest, and utilities as usual and record them as usual. You don’t need to do anything different.
  5. Record keeping: this is the most important step; without this all your work is for naught.
    1. Keep a paper folder with documents (payroll register & summary, health insurance, retirement invoices, utilities bills, mortgage statement, etc.) which can be shown to your banker to get your loan forgiven. You may need to highlight on your payroll summary which items you’re using toward the loan to avoid the mandate to not include FICA.
    2. Keep track of all your expenses, label the heck out of them – write on them the specific posting number from your accounting software or create a system. You want your banker to be able to look at your documentation and within 5 minutes say the loan is forgiven.

 

Again, keep it simple. Your banker is currently busy with the second round of PPP loans but at some point (before the final visit) have a checkup with your banker to ensure she or he knows what you’re doing and is good with it.

 

Lead On!

Steve

Pros & Cons of Changing the Fiscal Year

Changing a church’s fiscal year away from a calendar year is hard. Usually it requires changing the constitution and that alone means multiple presentations to the church membership. It also requires changes in the budget year, the way committees and teams plan and spend, the way the Finance Committee reports to the church, etc. But it can be beneficial to the church’s finances and not ending December with “will we make it” mentality.

I recommend a church do an analysis to determine the cost/benefit of such a change. Here are some points to consider.

Pros

  1. Allows the church to use the end of year gifts into the next year.
  2. Avoids the “Will we make it?” mentality associated with getting end of year gifts and all that uncertainty.
  3. Moves the budget process to the spring instead of the summer and early fall.
  4. Aligns the fiscal year with the school year which in society is the beginning of the year.
  5. Allows TCCC to have their fiscal year aligned with their school year.
  6. Pushes the year-end financial reports away from January and the requirement to get that done even if staff is sick or the weather is bad.
  7. Moves the year-end and year-beginning work on the creating/storing folders and files; inputting new budget into the financial software; adjusting personnel wage changes in payroll; etc. away from the holiday season.
  8. Every five years allows the audit to be done during the low auditing season. High season is tax season (February-April).

Cons

  1. A lot of work initially to adjust the fiscal year, the budget, and communicate with all the vested parties and get their input on the process and its desired outcome.
  2. Affects several committees/teams and changes some routines:
    1. Admin Board and Finance – new budget timeline, end of year reporting, etc.
    2. Personnel – affects when salaries are changed and reviews are done
    3. Constitution – requires a constitutional change
    4. TCCC – moves their budget
    5. Nominating – may affect them (uncertain about this)
  3. Moves away from a clear fiscal year = calendar year.
  4. There is still a last minute, year-end rush to get gifts which still keeps the staff busy at Christmas, New Year’s, and the first few weeks of January.

 Treasurer’s Recommended Fiscal Year: August 1 through July 31

Lead On!

Steve

 

Church Finances during COVID-19 (part 5 of 5) – Closing Doors

Every year several hundred churches close their doors permanently. Countless churches are already on wobbly financial grounds and an economic crisis will close more than the usual number. The impending economic crisis forecasted for us is huge: double digit unemployment lasting months or years, economic recession or even depression, etc.

 

If your church does find itself being forced to close forever, consider some alternatives that will enable the assets of your church to help others.

  1. Talk with your local religious body leader to see if you can donate your building and property to the local judicatory (association, convention, conference, presbytery, diocese, etc.). They will take ownership of the building and give or sell it to a new congregation. If that isn’t possible, they can sell the property to a developer and then they’ll invest that money and at a future date, make grants to new churches so that several phoenixes can rise from a closed church.
  2. If you don’t have anyone to talk with about this, please contact me. I have resources.

 

Please do not go to extreme lengths to prolong the life of a church that is moribund. Like people, churches should have a DNR (do not resuscitate) protocol. Instead of using resources to keep a building open and a congregation going, use those resources to close the doors gracefully and bless new church starts with your assets. That will honor the Kingdom the most.

Lead On!

Steve

Listen to the podcast:
https://anchor.fm/cbf-va/episodes/Church-Finances-during-the-Pandemic-Navigating-the-Financial-Fallout–the-CARES-Act–and-Making-Tough-Decisions-ecfgm7

Church Finances during COVID-19 (part 4 of 5) – maintain (or increase) income

During this time when church buildings are closed, the church can address its finances in a productive way. During the 2008-2010 Great Recession, I advised churches to reduce their budgets by 10%; the churches that did that survived without letting go any staff or even cutting their wages. The level of our impending economic crisis is dramatically different than the Great Recession so the ideas of the past may not serve us in the present but they can help. Here are some ideas for the present reality (these ideas are good for any time of the year, not just during a crisis).

 

Maintain (or Increase) Income

  1. Online giving
    1. If you have an online giving program, mention it in every communication sent out from the church and in your Sunday worship services.
    2. If you have online worship, ensure there is a link to your online giving or a QR code visible on screen at all times
    3. Make sure that “Give” or “Donate” is a bold/red clickable link on your church’s main web page.
    4. If you don’t have an online giving program, contact the folks at Tithe.ly to get one set up. It takes an hour or so. I don’t get any referral money from them but I’ve used almost a dozen online giving platforms and Tithely is among the best.
  2. Donor Gift Statements
    1. Every quarter and right after Thanksgiving, send an email statement of contributions to each of your donors. This won’t cost anything except time and it goes only to your donors unless you expand the spectrum of who gets the notice. Attach a cover letter that includes stories of the ministries the church has done recently with children, youth, adults, missions, etc.
    2. During this time of Covid-19, it is critical that you send out a letter (like NOW) and donor gift statement. Donors need to be reminded to give, to be thanked for their gifts, and to know what their gifts are doing. Please tell people that while your building was closed your members and staff were busy doing ministry – the church continues to live.
  3. Special mailing
    1. Depending on how your finances are doing, you should consider a special letter sent from the Finance Committee in May and/or June 2020. (In July you’ll send another donor gift statement). This letter should spell out the financial situation of the church, thank people for their gifts, and encourage more giving if the shortfall is significant.
  4. Contact your members
    1. Use this time to have members of the staff and key committees (Elders, Trustees, Finance, Personnel, Deacons, etc.) talk via phone (not email) with every member and attendee of the church. They need to feel connected and leadership should step up.
  5. Planned Giving and Endowment
    1. Talking about including the church in members’ wills is always right. It isn’t morbid to mention this topic – people are already thinking about death but they’re not thinking about their will and they need to. Prompt them to use this time to consider what will happen to their estate when they die. People give money to three things (actually four): their family, their friends, and the organizations they love (and taxes if they don’t plan well; Howard Hughes and Aretha died without wills and paid Uncle Sam millions).
    2. If you need help getting an Endowment started at your church or want more info, please go to churchbestpractices.org and download the free “Endowment Manual.”

Lead On!

Steve

Listen to the podcast:
https://anchor.fm/cbf-va/episodes/Church-Finances-during-the-Pandemic-Navigating-the-Financial-Fallout–the-CARES-Act–and-Making-Tough-Decisions-ecfgm7

Church Finances during COVID-19 (part 3 of 5) – reducing expenses

During this time when church buildings are closed, the church can address its finances in a productive way. During the 2008-2010 Great Recession, I advised churches to reduce their budgets by 10%; the churches that did that survived without letting go any staff or even cutting their wages. The level of our impending economic crisis is dramatically different than the Great Recession so the ideas of the past may not serve us in the present but they can help. Here are some ideas for the present reality (these ideas are good for any time of the year, not just during a crisis).

 

Reduce Expenses

  1. Personnel – this is 50% to 60% of a church’s budget so let’s start here
    1. Hiring freeze – do not hire anyone new to your staff. Stay focused on who you currently have and try to retain them. Some may leave and that’s okay but don’t replace them right away. Try to get by with a smaller staff. When your finances stabilize decide then if you can afford to hire new staff.
    2. Cutting staff – if you do need to cut staff, then first let go the staff that under-perform. It is always painful to terminate people (I’ve terminated over 50 in my career so I speak from experience) but this might be a time for you to terminate staff that have not performed well or are part of a ministry that isn’t in your core. That is harsh – I recognize that – but we’re talking about the continuance of your church and ministry. You can provide the terminated staff with benevolence money for groceries and rent/mortgage for a few months. Terminating staff will let the rest of the staff and the membership know how serious the situation is – it’s a reality check.
  2. Building – this is the second largest expense area of a church’s budget, usually 15%-25% (depending on whether you have debt)
    1. Talk with your bank about refinancing. Banks are borrowing money from the Federal Reserve at 0% so they can afford to lower the rate they charge their customers. Have this conversation – the worst your banker can say is “no.”
    2. Change your thermostat settings: 60 or 65 when it calls for heating; 80 when it calls for air conditioning.
    3. Turn off lights and keep them off
    4. Reduce the number of trash pickups
    5. Look at every one of your contracts and put them out to bid in the next few weeks and months. This is low-hanging fruit through which you can save a LOT of money if you negotiate.
    6. You may not need to bid out every contract. If you’re particularly satisfied with a vendor, ask them to reduce their fee. In 2010 I asked and my lawn management company cut their fees by 30% so I kept them and they’re still there 10 years later.
  3. Programming – this is the third area of church spending and it is the smallest, usually 15%-20% of which 5%-10% is missions. There’s not much you can do here but you can be creative.
    1. It appears now (April 2020) that mission trips for this summer will be cancelled. Use the money allocated for that to do creative missions:
      1. Send the money directly to your missions partners in the country or region where you were going and let them use the money however they want or need to.
      2. Use the money to do missions in your own city.
        1. Provide meals and snacks to your local hospital’s staff.
        2. Send gift cards to your banker who is working hard for you.
        3. Give gift cards to people whose income has been deeply affected by the economic shutdown: restaurant workers, hotel staff, retail employees, small businesses, etc. These are your friends and neighbors – take care of them. They’ll remember what you did.
        4. Create videos and have them sent to your nearby retirement communities. They are in lock down and they desperately need to know that you’ve not forgotten about them. Ask the retirement community to show the videos on their in-house TV network.
      3. Natural attrition
        1. You’ll have a natural reduction in some expenses such as flowers, candles, Sunday School materials, etc. Some of your printed materials may switch to online PDFs and they are cheaper.

 

Bottom line: take this opportunity to seriously look at your expenses and see what you can cut that won’t affect your ministry or that will protect your core ministry.

 

Lead On!

Steve

Listen to the podcast:
https://anchor.fm/cbf-va/episodes/Church-Finances-during-the-Pandemic-Navigating-the-Financial-Fallout–the-CARES-Act–and-Making-Tough-Decisions-ecfgm7