Introduction
During the past few weeks financial normality has been completely disrupted, as governments, businesses, other organisations and individuals seek to come to grips with the financial implications of dealing with COVID-19. This is no different for churches. Many churches are justifiably concerned about cash flow; already seeing or expecting donations to fall and wondering how best to cope.
As a church leader, treasurer or trustee, now is not the time to panic, but rather, the time to plan ahead. Making decisions “on the hoof” is stressful, and can sometimes lead to poor outcomes. Planning for the future will help reduce stress and provides a window for prayer and reflection to consider the implications of decisions made.
Before starting to climb any mountain, climbers establish a base camp. So as we address this current situation in our churches, what represents a financial “base camp”? We suggest that for church leadership teams, this requires a good understanding of:
* Cash in this context is money held in church bank accounts that can be readily accessed.
From this base camp, you can go on to construct a meaningful cash flow and draw up a series of plans that can be adapted as circumstances change and develop. There is an old financial saying that “cash is King”. Whilst this is not true for churches where Jesus is of course King, you get the point. If your church is going to run into financial problems, a lack of cash will almost certainly be the cause of it.
Starting cash situation
Cash in most churches falls into three pots, and it is important to be clear about what cash is available to the church.
Pot 1 – Restricted funds. Where cash is held as part of a restricted fund, this is not available to the church for general use. Cash held in restricted funds can only be used for purposes that meet the restriction of the fund. In its most recent guidance, the Charity Commission has confirmed this position. In certain cases it may be possible to borrow from a restricted fund, but this is not a straightforward process and we suggest it should only be undertaken after seeking legal advice.
Pot 2 – Designated funds. These are unrestricted funds that have been “earmarked” or set aside by the trustees for a specific use (e.g. building maintenance, youth worker etc.). It is likely that these funds can be used for general purposes but will normally require the trustees to remove the designation.
Pot 3 – Unrestricted general funds. These are funds available for general expenditure in accordance with the church’s charitable purposes.
So, cash held in Pot 3 and, more often than not, Pot 2, will provide a church’s starting cash position.
Ability to access cash
Two things to consider here:
Where possible, amend those mandates and if you can, increase the number of people able to access bank accounts in the event that your main “go to” people are unavailable (illness or perhaps internet connectivity).
Look at your income streams
Look at your main income streams and consider the likely impact on them over the next month; three months; and dare we say - six months.
Churches more reliant on church service offerings may need to encourage donors to set up standing orders or make electronic transfers where possible. Remember that for those in self isolation or unused to internet banking this may not be realistic, so a 100% conversion rate is unlikely.
All churches should look at the make-up of their donor base and conduct an assessment of the financial impact that the crises may have on future levels of donations. Who within your church is most likely to suffer a loss of income? What particular business activities are coming under strain? What family situations are you aware of that might impact people’s ability to give?
Expenditure
Inevitably, a certain level of expenditure will continue, but by allocating expenditure into silos, planning for future cash flow is more straightforward.
Explore the financial help that is out there
Government and other institutions are making financial help available in different ways, so take some time to explore and understand the various schemes and how they might apply to your situation.
Some actions to consider might include:
Armed with this information, you can now construct a simple but effective cash flow projection for your church. This projection needs to be a living document able to be adapted and amended at short notice as reality and experience starts to shape estimation and projection. Here is a step-by-step suggestion as to how you might want to proceed.
Remember:
It may be that by agreement with staff the church can save the additional 20% of salary cost, but it does not have the power to apply this reduction unilaterally.
This is your Plan A and reflects the changes made in steps 2-4. It is what you currently expect or would perhaps like to see happen. Click the link to see an example rolling six-month cash flow for XYZ church.
This church has:
Recognising that at this stage the income side of the cash flow is largely guesswork, after taking all reasonable steps on expenditure, available cash balances are projected to fall below £55,000 in the next three months.
The next few steps are critical in providing a basis to determine the actions you will take next as your financial projection adapts to unfolding events.
Be in no doubt, these are significant actions that will have a real impact on the lives of people and the effectiveness of your church. They should not be taken lightly, but by deciding in advance the required actions and the trigger points for them, these can be enacted quickly and efficiently. Remember, the situation might deteriorate faster than you expect, leaving little time to react without a pre-considered plan.
Remember that as you start to contemplate action, early communication is essential. For example, mission partners will need to consider alternatives if funding is to be reduced or curtailed, likewise the implication for your church in amending activities will need to be thought through. As a general rule it is difficult to communicate too much.
At this point you might be looking to stop any remaining expenditure in Silo 2 and perhaps see what expenditure from Silo 1 could be reduced.
This is your Plan C.
Short of closing the church, Plan C probably represents all the actions that you can take, with expenditure stripped down to the bare bones. Hopefully Plan A or B will see you through this situation, but you should be prepared to move to Plan C if necessary.
Reserves are there for times like these. I am reminded of Pharaoh’s dream and the interpretation that Joseph provides in Genesis 41:28: “God has shown Pharaoh what he is about to do. Seven years of great abundance are coming throughout the land of Egypt, but seven years of famine will follow them.” Reserves are established in those times of abundance for times of famine, so do not be concerned if you see reserves depleted below the levels that you would normally hold. The Charity Commission is clear when it says “reserves can be spent to help cope with unexpected events like those unfolding at present”.
Reserves are therefore very much a part of your cash flow planning. The extent to which they are used up will in some part depend upon:
So our message to treasurers, trustees and church leaders is:
As the Government debates an appropriate exit strategy from this current lockdown, there appears to be little prospect that we will be able to meet together as physical church for some time. The planning that you put in place now will hopefully mean that once that time comes, your church will be able to gear up and become fully operational as quickly as possible.
The outworking of COVID-19 means that real financial harm is being inflicted on economies across the world and as yet, we do not know quite what will emerge on the other side. But, what we do know is that God remains faithful and as church leaders and trustees we are called to be people of faith and not just people of finance. We need to be wise, but we do have a very big God!!
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