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How to Monitor Your Church’s Financial Health
How to Monitor Your Church’s Financial Health
Three indicators you can check throughout the year.
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When I present at church board meetings, board members often ask me, “How can we be sure our church is financially healthy?”

It’s hard to apply the same methods to all churches because each has its own unique circumstances and challenges. The measurements and ratios that could show a warning for one church may not be meaningful to another. However, there are some indicators I always review, no matter what the underlying financial condition of the church. These will prove helpful guides for your church in monitoring financial health throughout the year.

Net Cash Availability

Cash is king. Your church must have enough cash on hand to operate today while also setting aside reserves for future months when giving may go down. A church without necessary reserves will be scrambling to operate in the short term, no matter what its other balances are.

One indicator of this is the Net Cash Availability measure, which is calculated as follows:

“Total Cash and Investments – Adjusted Current Liabilities (Current Liabilities Excluding Amounts Borrowed on a Construction Line of Credit) – Temporarily Restricted Net Assets”

The statement of financial position answers the question, “How much cash do we have?” but it doesn’t answer the question, “Whose cash is it, and how much of it can we spend?” The answers to those questions are typically very different; thus, net cash availability should be one of the most important measures your church leadership monitors. It uses the sum of total cash and investments less certain amounts the church may owe or need to spend for specific purposes due to donor restrictions. It calculates the amount of cash available for other uses, once the church has satisfied its current operating obligations and set aside appropriate funds for projects resulting from donors who have restricted their gifts’ uses.

I like to see that a church has at least one month’s worth of cash expenses on hand. If the amount is below that, it could be a warning: Any negative amount indicates borrowing from temporarily restricted funds and that immediate corrective action is necessary.

Giving Versus Expenses

Another key indicator I look at is trends in giving compared to expenses. The first measure I use is Total Contributions per Giving Unit, which is calculated as:

The ratio of “Total Contributions – Accrual Pledges – Large One-time Gifts” to “Giving Units”

The second measure is Total Cash Expenses per Giving Unit, which is calculated as:

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Posted:
October 25, 2016

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