Written By: Jim Sheppard
Principal
All of this leads an optimist like me to say what is hard to say. It is not over. At least not yet. It could be that all of these concerns are unfounded.
However, if I were the CFO of a church, here is what I would be doing.
Build Reserves
In this season, think about creating as much financial margin as you can to weather a possible lean period through the Summer and into the Fall.
Many churches have experienced reduced operating expenses in this season. Identify what those expenses are for your church. Put away all of the money you are saving on operating expenses.
Pare expenses even further. This is the time to go through your 2020 budgets and pro formas and pare unnecessary operating costs as much as you can. Your world has changed dramatically since you adopted those budgets for this year. You have all the reason you need to re-examine even assumptions from 6 to 8 months ago. Identify additional expenses that can be pared and put all of that money into building up reserves.
Prepare For A Possible Downturn
As a former CFO of a public company, I am all about being prepared in case there is a downturn.
Generally, I recommend three scenarios. For lack of a better naming convention, let's call them Scenarios A, B, and C. They represent the effects of mild, moderate, and severe giving shifts, respectively. Scenario C represents what you envision as your worst case. It is the most painful scenario to put together. However, what I have learned is that getting our scenarios in place allowed us to relax a little and make better decisions as the situation unfolded. In other words, we were not reacting to what happened, we were proactively setting a plan in motion based on what we had already decided. That is what I am recommending you do now. Develop your plans for each of the three scenarios. Then set them in motion based on how the situation unfolds. The reality is that we never had to resort to Plan C but we could lead with the confidence that we knew what we would do if that situation ever unfolded.
In Scenario A, you would develop a financial plan around giving staying relatively close to where it has been historically. That might be a scenario for stable giving up to a decrease of say 10%. You would make mostly painless expense adjustments to the budget for the remainder of 2020. In all likelihood, staffing would not be affected in this scenario. That is, unless you know you are over staffed. This will be the easiest of the three scenarios to develop.
Scenario B would anticipate a larger increment of decrease and a different level of planning. For the purposes of this example, let’s say that is your scenario for a giving decrease of 15-25%. If you were a church that has developed reserves over the years, and we certainly recommend that, this would be a time for you to consider how much of those reserves would be deployed to make up for the shortfall in giving, particularly if you thought the shortfall was not going to be long-term but you need to plan for it in the coming 2 to 6 months. This scenario generally involves getting beyond superficial cuts and moving into a more significant expense realignment.
That could mean staffing. I urge churches to be careful before you put into place any staffing shifts, because moves like this always cause a reverberation in the congregation. It can signal instability and financial concern at a time when you least need for people to feel that. So, in addition to making the financial moves that you need to make, you will also have to decide how to message this to your people in a way that projects confidence in the church and its leaders.
Scenario C is the plan for a severe giving decrease that you see lasting beyond this season. Let’s say there is a decrease in giving of 30% or more. It is the most painful scenario to develop because it involves a complete re-thinking of your entire model of how you do church. It will entail significant shifts in staffing, which are difficult for any organization and even more so for a church. But you will have to do it if your financial reality is such that you cannot continue to fund your current staffing model.
In Conclusion
I am very optimistic about church finances once we get on the other side of this season. Like you, I want it to be over…sooner, not later. I’m the “glass more than half full" guy, so my tendency is to lean that way. In our current situation, however, I am not fully confident we are out of the woods on this. I want to be wrong. But, for now, let me just say again…it’s not over. Yet.