Building a Strong Church Cash Reserves Strategy for Financial Health

Explore strategies to build and manage church cash reserves and debt service reserves for long-term financial health and stability.

Last Reviewed: January 27, 2025

Philosophy of Cash Reserves

Some churches choose not to maintain cash reserves—a respectable position. This article, however, is intended to help churches that do wish to build and maintain reasonable, healthy cash reserves and a strong financial position.

Why Reserves Matter

Unexpected situations can impact a church’s finances. Examples include:

  • A respected leader leaving or facing misconduct allegations
  • Sudden drops in attendance and giving
  • Economic downturns like the 2008 crisis, caused by war, market crashes, or other unpredictable events

Without reserves, such events can strain cash flow and distract leadership from ministry objectives.

Note: “Cash reserves” refers to both bank account balances and liquid marketable securities that can be quickly converted to cash.


Philosophy of Debt

Churches vary in their beliefs about taking on debt—often based on biblical interpretation.

  • Some churches avoid debt entirely.
  • Others allow for debt, provided it’s carefully planned and responsibly managed.

This article is written for churches that permit and manage debt.

Reserves and Debt Go Hand in Hand

Churches with significant outstanding debt should maintain strong cash reserves. A church that chooses not to keep reserves should also avoid incurring significant debt.


The Role of Cash Flow

To maintain a healthy financial position, a church must consistently generate cash flow surpluses.

Some leaders say they want cash reserves but spend all available revenue annually. This makes it impossible to build liquidity—regardless of intentions.

What It Takes to Build Reserves

Building reserves requires intentional planning during budgeting:

  • Plan to spend less than you receive in cash revenue.
  • If your revenue is growing, slow or stop spending increases.
  • If revenue is flat, consider increasing giving or finding new revenue sources or cutting expenses.

Reaching a Desired Financial Position

Having cash flow surpluses is important—but not enough. Churches should set specific financial goals with clear timelines.

Steps to Take

  1. Agree on the philosophy: Commit to maintaining healthy reserves.
  2. Define what “healthy” means: Set clear targets for reserves and financial health.
  3. Establish a timeline: Know when you want to reach those targets.
  4. Break it into milestones: Use annual benchmarks to track progress.

Example Goal

  • Current Reserve: 1 month of operating expenses
  • Target Reserve: 6 months of operating expenses
  • Timeframe: 5 years
  • Annual Milestones:
    • End of Year 1: 2 months’ reserves
    • End of Year 2: 3 months
    • …and so on until 6 months by Year 5

Recommended Objectives for Cash Reserves

Each church’s goals should be tailored to its situation and these goals should be discussed with an experienced financial advise. Still, general guidelines exist:

Note: The recommended levels below are based on the assumption that the church already maintains cash, including liquid marketable securities, adequate to cover all donor-restricted and designated net assets. Recommended reserves and balances are levels in excess of the amounts required to cover such items.

Operating Cash Reserves

  • Baseline:
    • 3 months of operating expenses plus current liabilities
  • Strong:
    • At least 6 months of operating expenses plus current liabilities

Debt Service Reserves (for churches with mortgages or other long-term debt)

  • Baseline:
    • 6 months of debt service (principal + interest)
  • Strong:
    • At least 1 year of debt service costs

Important: If your lender requires a minimum reserve, going below it can trigger a loan default. To use reserves freely, maintain more than the required minimum.


Why Cash Reserves Matter More Than Equity

When using debt to build or buy property, churches often invest significant cash equity to reduce debt.

However, maintaining an adequate debt service reserve may be more beneficial than maximizing equity.

  • Equity can’t be used to make loan payments during financial hardship.
  • A debt service reserve offers flexibility and protection in uncertain times.

Final Thoughts

Healthy cash reserves and debt service reserves are key components of responsible church financial stewardship.

Church leaders should:

  • Set realistic targets for liquidity and financial health
  • Develop and follow a multi-year plan to meet those goals
  • Use annual milestones to monitor progress

The path may be long—but the destination is a financially stronger, more resilient church.

The original version of this article has been updated for improved readability.

Michael (Mike) E. Batts is a CPA and the managing partner of Batts Morrison Wales & Lee, P.A., an accounting firm dedicated exclusively to serving nonprofit organizations across the United States.
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