Operations 103 Financial Health, Class 6

Operations 103Financial Health, Class

6

Today’s Topic

This class will examine both internal and external reporting mechanisms.  We will examine the efficient use of financial resources and a comparative analysis to other churches.  Along the way we will examine options for financial indicators and methods for determining the financial health of your church.  This will help you assess the financial strength and health of your church.  You will able to compare benchmarks of other churches to your church.  This type of data will improve your financial stewardship, allow for strategic decisions and identify areas for improvement.

Stan Reiff

Stan is a Principal with CapinCrouse, serving as the National Director of Outsourced Financial Services and as a member of the firm’s national consulting services team.  He has over 20 years in ministry operations, public accounting, government accounting, and missionary work.  He has been the COO for a large financial ministry. This leadership experience provided him the opportunity to oversee the day-to-day operations and sustainability of the ministry, which encompassed human resources, technology, sales and marketing, global presence, volunteer involvement, and funding.

Performance MeasurementsStan Reiff, CPA, CGMAPartnerNational Director, Denominational & Church Services

Overview

• Common issues affecting churches• Things to be aware of• Ratios

Cash flow and reserves Asset ratios Debt ratios Income ratios Expense ratios

Common Issues Affecting the Church

• Contributions have been down• Attendance may be up• Attendees needs have increased• Debt incurred in “good times” has fixed

consequences• Credit is not readily available

Measuring Financial Health

• How do the financial resources of the church compare with other churches?

• What are the most appropriate key performance indicators for the church?

• Does the church have adequate financial resources to accomplish its mission?

• Is the church accomplishing its strategic goals

Dashboard Data

Category Measures

Finance Cash, debt, contributions

Accounting Timeliness, checks, JEs

Information Technology Downtime, backups, space

Human Resources FTEs, turnover, satisfaction

Ministry Decisions, baptisms, volunteers, number of new members

Facilities Maintenance, capacity

Demographics Attendance, donors, visitors

Website Hits, visit duration, viewers, giving

“Everything that can be counted does not necessarily count; everything that counts

cannot necessarily be counted.”

— Albert Einstein

Every Church Should be Aware of

Monthly giving trends: Impacts budgeting Impacts when expenses are planned Determine need for EFT giving (or other creative options) Shows reliance on reserves or a line of credit

Consider tracking contributions per attendee or per giving unit

Every Church Should be Aware of

Debt covenant requirements Financial statement deadlines No other debt (leases, etc) Debt coverage ratios Other ratios

Every Church Should be Aware of

Cash availability Cash less payables and temporarily restricted Not how much cash, but whose cash

Cash reserve ratio Cash/(expenses/12) Reserves are critical especially where services could

be disrupted (blizzards)

Ratios – Cash flow and reserve

• Expendable reserves ratio – how many days of operation are currently available

• Coverage ratio – number of days of operation available from cash flow and LOC

• Liquidity ratio – how current cash investments covers cover liabilities

• Net cash availability – cash available for items after current liabilities and temporarily restricted net assets

2008 2009 Average0

50100150200250

241

14.734.1

Expendable Reserves Ra-tio

# of Days

Benchmark: 30-60 Days

2008 2009 Average0

50100150200250300

54

291

122

Coverage Ratio

# of Days

Benchmark: 120-180 Days

2008 2009 Average02468

1010

2.1

4.7

Liquidity Ratio

Liquidity

$(400,000) $(200,000)

$- $200,000 $400,000 $600,000 $800,000

$1,000,000 5.325 Mil

-240,228

-133,047

Net Cash Availability

Cash Available

Benchmark: 5.0 Benchmark: >0

Ratios – Asset Ratios

• Assets per attendee

• Average age of facilities

• Assets per FTE

2008 2009 Average $-

$2,000 $4,000 $6,000 $8,000

$10,000 $12,000 $14,000 $12,722 $12,796

$8,265

Assets Per Attendee

Assets

2008 2009 Average02468

1012 10.7

11.6

6.9

Average Age of Facilities

Age

2008 2009 Average $-

$100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $523,411

$432,950 $401,650

Assets per FTE

Assets

Ratios – Debt Ratios

• Debt to unrestricted support – debt is how many times the annual unrestricted support?

• Debt to fixed assets – how leveraged are the assets (from a cost perspective)?

• Mandatory debt service to unrestricted contributions – is it manageable?

• Debt average per attendee – good comparison between organizations

2008 2009 Average0

0.5

1

1.5

2

1

0.1

1.6

Debt to Unrestricted Support

Debt Ratio

Benchmark: <or = 3.0

2008 2009 Average0

0.1

0.2

0.3

0.4

0.5

0.31

0.04

0.45

Debt to Fixed Assets

Debt Ratio

Benchmark: < .35

2008 2009 Average0.00%

5.00%

10.00%

15.00%10.90%

3.80%

14.00%

Mandatory Debt Service to Unrestricted Contributions

Percentage

2008 2009 Average $-

$1,000

$2,000

$3,000

$4,000 3,980

464

2,847

Debt Average per Attendee

Debt

Benchmark: < 30%Benchmark: $11,167

Ratios – Income Ratios

• Net income ratio – amount of net income as compared to total unrestricted revenue

• Contributions per attendee – this information is a good trend to watch (or use giving units)

• Unrestricted giving per FTE – when compared to other churches this provides you an idea of appropriate staffing levels based on the budget

2008

2009

Averag

e

-2.0%-1.0%0.0%1.0%2.0%3.0%4.0%

3.7% 3.8%

-1.7%

Net Income Ratio

Percentage

2008 2009 Average$0

$1,000 $2,000 $3,000 $4,000 $5,000 $4,087 $3,860

$2,608

Contributions Per Attendee

Amount

2008 2009 Average $-

$20,000 $40,000 $60,000 $80,000

$100,000 $120,000

$117,578 $116,780

$97,797

Unrestricted Giving per FTE

Amount

Benchmark: Positive Benchmark:$1,200 Good$1,500 Above Average>=$2,000 Strong

Ratios – Expense Ratios

• Salaries and benefits as a percentage of income and/or expense – good comparison with other churches to determine appropriateness of compensation

• Missions as a percentage of total expense• Facilities as a percentage of total expense• Expenses per average attendee – what is the total

cost per person in your church?

2008 2009 Average36.00%38.00%40.00%42.00%44.00%46.00%48.00%

40.50%

43.50%

46.30%

Salaries & Benefits

Percentage

2008 2009 Average0.00%2.00%4.00%6.00%8.00%

10.00%12.00%

1.40% 1.10%

11.30%

Missions

Percentage

2008 2009 Average0.00%2.00%4.00%6.00%8.00%

10.00%12.00%14.00%

10.80%12.00%

13.10%

Facilities

Percentage

2008 2009 Average $-

$2,000

$4,000

$6,000

$8,000 5,980 5,464

2,847

Expenses per Average At-tendee

Amount

Benchmark: 40-50% Benchmark: 10-25%

Benchmark: Maximum 15%

Church Financial Health Index™

• Days of expendable reserves

• Percent of operating cash on hand

• Net cash provided (used) by operations

• Coverage ratio

• Liquidity ratio

• Net cash availability

Church Financial Health Index

• Property and equipment per attendee

• Average age of facility

• Assets (including PPE) per FTE

• Assets (excluding PPE) per FTE

Church Financial Health Index

• Debt to unrestricted support

• Debt to total support

• Debt to property and equipment

• Current ratio

• Debt per average of attendees and giving units

• Debt coverage

Church Financial Health Index™

• Net income ratio

• Total contributions per average attendees and giving units

• Percent of median household income given

• Unrestricted giving per FTE

• Revenues per accounting FTE

Church Financial Health Index™

• Salaries and benefits as a percent of contributions

• Average salaries and benefits per FTE

• Personnel and mandatory debt service payments as a percent of total expenses

• Interest expense as a percent of contributions

• Facility expense as a percent of contributions

Performance Dashboards

“Like a magnifying glass, a performance dashboard can focus people and teams on the

key things they need to do to succeed. It provides executives, managers, and workers timely and relevant information so they can

measure, monitor, and manager their progress toward achieving key strategic objectives.”

— Wayne Eckerson, Performance Dashboards

Questions

Stan Reiff, Partnersreiff@capincrouse.co

m

Thank You!

Questions from the Reading by Chris Calvert

Chapter 11: Legal Matters1) What legal issues discussed in Chapter 11 do you find the most

confusing or hard to keep track of? What have you found to be the best source of help in areas of confusion?

2) Do you use a payroll company? What are some of the advantages or disadvantages of using a payroll company?

Chapter 12: Debt3) In your opinion, should a church aggressively work to pay off their

debt or rather just chip away at it while financing other ministry areas instead? Why do you think so?

4) How have you seen attitudes toward "good debt" (debt on appreciating assets) change over the years? What would you say is the prevailing attitude toward it in your church these days?