Q&A: Should We Start Digging Into Our Financial Reserves?

Churches that deplete their reserves should replenish them over time.

Q: My church is fortunate enough to have a number of investments in reserve. We really don’t want to deplete those investments, but our current cash flow is down because of the pandemic and we’re wondering if now would be the time to convert some of those investments into cash. Should we start digging into our reserves? Is this a good or bad idea?


Like you, churches and other organizations with liquid assets will sometimes put additional assets into marketable security holdings with the hope of generating investment income while they’re being held as reserves.

The assumption is that you would convert those investments to cash when they are needed. Normally, we don’t assume that everyone would want to liquidate their investments and convert them to cash at the same time, but that is, to a large extent, what happened early in this pandemic. That is one of the reasons the stock market dropped as much as it did early on.

So, yes, it is appropriate to prudently use cash reserves when unexpected developments cause cash flow shortages from regular operations. That is the essential purpose of cash reserves.

In my book, Church Finance: The Church Leader’s Guide to Financial Operations, I have several basic metrics of church financial health. One of them relates to liquidity and having cash reserves for operations.

Specifically, I describe two levels of reserves—sound and strong.

I generally believe and espouse the view that having three months’ worth of operating expenses in cash reserves is sound. And having six months’ worth of operating expenses in cash reserves would be strong.

Churches that begin to utilize their reserves—and deplete them going forward—must remember that the fundamentals regarding reserves don’t change. And while we don’t know what the future is going to look like in terms of our financial operations, we still need to keep in mind that cash reserves have a place for unexpected developments that can still be coming.

Once you prudently use cash reserves to help the church through a challenging time, then begin consistently and intentionally restoring the reserves to sound or strong levels over a reasonable period of time. For many churches, it can reasonably take a year to add one month’s worth of operating expenses to cash reserves. In my opinion, that is a reasonable time frame. So, if reduced your reserves during the pandemic from six months of operating expenses to three, it is reasonable to expect that it might take three years to restore the reserves to their former level.

Of course, the specific time frame will be unique to each church, taking into consideration the priority that the church assigns to restoring reserves.

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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