This post was last updated on February 19th, 2024 at 04:44 pm.

Most people have heard the phrase “cash is king” and when it comes to church finances and budgeting through the year, churches would probably agree with this statement. After all, does the church really like to borrow money in the summer months just to make payroll, fund a ministry, or keep the lights on in the building? Probably not.

What’s Cash Flow? Imagine a water barrel with an inflow tube (revenue / donations) at the top and an outflow tube (expenses) at the bottom. Water comes in through the inflow tube at the top and flows out the outflow tube at the bottom. When the level of water gets lower than the outflow tube, there’s no more water — cash to pay expenses. In other words the organization has nothing left to spend until more revenue comes in or expenses are dialed back to match what is coming in for revenue.

Churches typically see revenue fall during the summer months when families go on vacation or other reasons. They also see giving increase during the holiday months – Nov., Dec., and Jan. How does the church plan for these ups and downs in regards to cash flow?

In addition to inconsistent revenues, expenses tend to do the same thing. For example, maybe the church puts on a huge event in the summer or early fall. Or they start Sunday School up in September which has an initial increased cost.

Why is Cash Flow important? A few reason are to, 1.) keep from borrowing money, 2.) increase reserves that can sustain the church during the leaner months, 3.) protect against unexpected expenses, 4.) not rely on big donations or endowments to fund the church, as these are never a good idea.

How to avoid being cash strapped during the lean months of the year? There are a few things that can happen. One way is to build savings into the budget. Many budget meetings are about the question what do we have to spend? While that’s an important consideration for all supported ministries, building consistent savings into the budget, helps during lean months or unexpected  expenses. In fact this savings, should come first before any other ministry is authorized to spend. After all, aren’t families advised to save first, then bills seconds?

Next the organization should know about the past unexpected expenses as this helps to know what might be coming in the future. For example, if you just put on a new roof, it’s highly doubtful it will be needed any time soon. However, the furnace that’s 40 years old may be the next thing to go out. Does the organization have enough money to cover it?

How much should the consistent savings be for a church? It’s recommended to get a 3 – 6 month operating cushion at first by using 10% of all revenue to build it up. This helps to absorb anything that’s unexpected. If 10% is too much than start with 5%. To jump-start the reserve, the church may have to get creative. For example, does the church have anything old or not needed, that could be sold for cash? Some example are books, furniture, sound equipment, computers, printers, kitchen appliances, etc. Another option is to have a community rummage sale, where people donate items to the church and the church publicly sells it.

Keep in mind the idea isn’t to buy new stuff but to sell items that the church doesn’t use. All this money should go into reserves in addition to the 10%. Keeping track of all reserves and other assets, the church should invest in a good church management accounting system.

A saying comes to mind – “Plan for the worst, and hope for the best.” It’s a relevant saying as reserves should only be used when the worst happens, but you always pray and hope — it doesn’t. 🙂