10-Minute Treasurer

Mistake #6 – No Savings Plan

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Does a church or nonprofit need savings? By their nature, shouldn’t they never have a profit and just scrape by? Is this a lack of faith? In the vast majority of cases, having an adequate amount in savings is just good stewardship. Most ministries will have three types of savings or, as I refer to them, reserves.

#1 – Operational Reserve

This is your Emergency Fund. If something bad happens such as an unexpected drop or delay in income, this helps you still pay the bills and make payroll. This is separate from the money you need for regular cashflow purposes. An emergency fund protects you from having to desperately emergency fundraise. Here are the basics:

  • Separate Bank Account: Put this in an account separate from the money you need for cashflow. This will make it easier to monitor. Make sure it’s readily accessible. You usually can’t wait 1-2 weeks when these types of emergencies arise.
  • Target Amount: You need to set a range of what you need in this account otherwise you will either have too much or too little. For most ministries, 3-6 months of expenses should be enough. For some where income is a little more fragile, aim for 6-12 months.
  • Keep up with Inflation: That interest rate is important. Invest in a High Yield Savings or Money Market that will get you something close to the same rate as inflation (currently around 3%). Avoid CD’s because the odds of your emergency happening at the same time the CD matures is 0%…which is the rate of return you’ll also get from cashing in the CD early.

#2 – Capital Reserve

If you own property or have some other large obligation, you also need a Capital Reserve. This is for those issues like needing to replace the shingles or fix the parking lot or throw money into the HVAC. Why is this important? How can you focus on your mission (feeding the hungry, preaching the gospel, etc) when you don’t have any heat during the winter? All your focus moves from the mission to fundraising to fix the property issue. A capital reserve protects your mission AND your property when disaster strikes. Here are the basics:

  • Invested: Since you usually don’t have to pay cash up front for capital repairs, this is safer to invest in a Mutual Fund. You will get a much better return which means less fundraising. Talk with your local community foundation for options.
  • Target Amount: You also need to set a range. 10-15% of the insured value of property is a good starting point. Having this fully funded also allows you to set a higher deductible which lowers your premiums.

#3 – Project Savings

This is the one we’re most familiar with. Usually it’s property related and attached to some kind of capital campaign. Even with a fully funded capital reserve, you probably won’t have enough to fix your parking lot or remodel the inside of your building.

  • Timing: Timing is the only issue I see. If the project is less than three years away, DO NOT HAVE THIS MONEY IN THE MARKET! Put is in a CD or Money Market account, but not in stocks and bonds.

In the video, I do have some other thoughts on how to build and manage these reserve accounts that might be helpful.

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