Three Key Financial Mistakes that Financial Stewards Often Make

As stewards of critical resources that allow faith-based organizations to survive and do the good works they are called to do, those in position of managing the finances of religious organizations must develop the ability to identify financial problems that might be on the horizon.

Unfortunately, as is shown by the number of churches and other religious organizations struggling to remain operationally afloat, many do not detect or correct their problems early enough. While it is true that some problems are unique to an industry or organization, it is also true that most are not. And usually, if the issue is identified early, resources are available that can help with resolution. On the other hand, if a problem is allowed to grow, solutions can become more costly and time-consuming, and can impact other resources allocated to the mission of the organization.

For most churches and other faith-based organizations, the reason problems go undetected can be traced to a few common mistakes which can be easily corrected.

1. Failure to Analyze Financial Information

In many organizations, accounting is viewed as “bean counting” that is simply being completed for some outside party. Although it is true that other parties (for example, lenders) may need access to the financial statements of an organization, financial information is a very important resource for those inside the organization charged with fiscal stewardship such as treasurers, finance committees, or others who participate in budgetary decisions. Church leaders, both lay and ordained, who do not view their statements as a management tool are missing an important part of their financial stewardship by not using the statements as an opportunity to detect problems in their organization.

Beyond simply using financial statements to determine whether the organization is financially sound, statements should be examined to determine how specific areas of the organization are operating.

To avoid potential problems, financial statements should be reviewed regularly by those charged with financial stewardship to identify unexpected and unbudgeted changes in the organization. These changes include downward or seasonal trends in contributions or increased operating expenses due to accumulated small items that can add up over time. When changes are identified, further investigation can be done to find the reason for each change and allow for more timely resolution. There are always uncontrollable events, but regular review can allow for course correction when unavoidable events happen.

2. Not Using Projections Properly

Failing to prepare projections is a common mistake made by many religious organizations. Although most professionals agree that projections are necessary, it is easy to get too focused on the daily activities of ministering and service to project the future. Unfortunately, without a clear plan of how the organization should be operating financially, it is easy to miss subtle clues that things are off-course.

An equally costly mistake occurs when projections are prepared and then allowed to collect dust in a drawer. When projections are watched closely by those charged with financial stewardship, they have the opportunity to make small adjustments to get things back on track. Often, it is these small adjustments that keep problems from growing further.

3. Not Understanding Cash Flow Needs

One of the most common causes of problems in an organization is the lack of adequate cash flow. Without cash flow projections, it is nearly impossible to estimate the needs for the cash the organization will have in the future. Despite this fact, many churches and other religious organizations still make the mistake of not adequately projecting their cash flow needs.

To identify future cash flow problems, financial stewards should prepare two sets of projections. The first set should project cash flow needs over a period of at least one year. This information allows the organization the ability to plan for revenue needed for long-term needs (generally in the form of contributions). In addition, it is wise to prepare a short-term projection for the next four to six weeks, which should be updated at least every two weeks.

If a problem is detected because of a temporary need, church members or other supporters are often willing to help, provided that adequate time is given to address the problem. Many cash flow problems can be corrected if adequate time is available to find a solution.

Avoiding these common mistakes can mean the difference between fiscal success and failure for a religious organization. The small investment of time necessary will provide substantial rewards, allowing the organization to focus on living into its mission of service with the knowledge that it is also maintaining good stewardship of the financial gifts it has for that mission.