Operations 103 Financial Health, Class 6

1. Operations 103Financial Health, Class 6

2. 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. Today’s Topic

3. 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. Stan Reiff

4. Performance Measurements Stan Reiff, CPA, CGMAPartner National Director, Denominational & Church Services

5. Common issues affecting churches • Things to be aware of • Ratios • Cash flow and reserves • Asset ratios • Debt ratios • Income ratios • Expense ratios Overview

7. 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 Common Issues Affecting the Church

8. 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 Measuring Financial Health

9. Dashboard Data

10. “Everything that can be counted does not necessarily count; everything that counts cannot necessarily be counted.” — Albert Einstein

11. 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

12. Debt covenant requirements • Financial statement deadlines • No other debt (leases, etc) • Debt coverage ratios • Other ratios Every Church Should be Aware of

13. 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) Every Church Should be Aware of

14. 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 Ratios – Cash flow and reserve

15. Benchmark: 30-60 Days Benchmark: 120-180 Days Benchmark: 5.0 Benchmark: >0

16. Ratios – Asset Ratios • Assets per attendee • Average age of facilities • Assets per FTE

18. 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

19. Benchmark: <or = 3.0 Benchmark: < .35 Benchmark: $11,167 Benchmark: < 30%

20. 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

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

22. 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?

23. Benchmark: 40-50% Benchmark: 10-25% Benchmark: Maximum 15%

25. 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™

26. Property and equipment per attendee • Average age of facility • Assets (including PPE) per FTE • Assets (excluding PPE) per FTE Church Financial Health Index

27. 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

28. 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™

29. 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 Church Financial Health Index™

30. “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.” Performance Dashboards • — Wayne Eckerson, Performance Dashboards

31. Questions

32. Stan Reiff, Partnersreiff@capincrouse.com Thank You!

33. Chapter 11: Legal Matters • 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? • Do you use a payroll company? What are some of the advantages or disadvantages of using a payroll company? Chapter 12: Debt • 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? • 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? Questions from the Reading by Chris Calvert