Can Our Church Own a Business?
I recently received an email from one of our readers asking if their church could own a business. Someone wanted to donate a business to the church, but the reader didn't know if the church was even allowed to own and operate a business that would bring the church income.
In short, the answer is yes. The church is allowed to own a business that generates income for the church.
I have always encouraged churches to actively pursue sources of income outside of the tithes and offerings. In today's changing times, opportunities for churches to create alternative sources of income abound.
These range from bookstores to day care centers, culinary schools to financial training. Churches are beginning to invest some of their time into building income outside of the traditional. Below you will find four examples.
The church is allowed to own a business that generates income for the church.
4 examples to consider
Mr. X owns a hair salon and he wants to donate it to the church. Church XYZ receives the salon and Mr. X gets a tax deduction. Church XYZ converts it to a cosmetology school. The school grows and generates income for the church through two streams; tuition and nominal charges to the general public to get their hair styled by trainees.
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Mr. and Mrs.Y donate a restaurant to Church XYZ. The church coverts it to a culinary training school and generates income from tuition and restaurant food sales. What makes this avenue attractive is that the restaurant sales are generated by the students cooking and serving. Payroll costs are almost non-existent.
Church XYZ starts a day care center in a rented facility. It is run by one employee and many volunteers. The daycare has a goal to disciple children and currently has 62 children enrolled, generating significant revenues for the church. One year later, the day care center offers a breakfast and dinner program, as well as a dry cleaning facility for parents to drop off clothes at the beginning of the day. Revenues sky rocket and the pastor no longer has to rely solely on tithes and offerings to pay the church's bills. Our book, How To Start a Day Care, shows you just how little the initial investment is!
Church XYZ has several talented graphic design artists and tailors who have experience in design apparel manufacturing. The church decides to tap their talents, which the artists initially volunteer, and so begins a clothing line that is thematically consistent with the church's vision and purpose of winning the lost. In its first year, the clothing line does not make any profit. However, in the second year, they get into several bookstores and make a profit of $15,500.00. They are now looking to expand their brand nationally.
I could give you many more examples on how a church can generate income in addition to tithes and offerings, bake sales and donations, etc. When a church develops multiple income streams, it breaks away from the traditional and also sets an example to its membership that is worthy to be duplicated. When a church relies on traditional fundraisers to help meet budget, it limits itself to small thinking and may come across to society as a harmless and irrelevant group of people.
Why depend on old methods when there are new horizons?
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Is your church investment worthy?
When a church has two real income streams it brightens the outlook for its financial future. Moreover, it becomes more investment worthy. Let me explain.
Because banks are in business to make money, when they consider whether or not they will make a loan to a church they look at it from the perspective of whether or not the church can repay the loan. In many instances, banks are leery of churches who only have income through tithes and offerings.
History has shown that solely depending on tithes and offerings can be unreliable. However, if a bank sees that the church has other sources of income, they are much more inclined to give them a loan. They also love financing projects that will generate more income.
Let me give you an example.
Church XYZ has $430,000.00 in its savings account from income that it made over a period of 9 years from its day care. The church has been wanting to build new facilities that will house both the church and the day care. The new plans will double the capacity of the day care. The church moves its money to a CD paying 2% per year. The pastor then negotiates a deal with the bank to loan the church the first $430,000.00 at 3%, secured by the CD.
In essence, the church receives a loan of $430,000.00 at a net interest rate of 1%. Having cash in the bank not only makes it investment worthy, but it also gives the church leverage to negotiate more favorable rates based on brick and mortar income and not just the charismatic personality of a great pastor.
After negotiating the first loan, the church then applies for a construction loan for the rest of the money needed to finish the building. The bank approves it up to $1,000,000.00 at 4.24%.
Bottom line: the church gets a brand new sanctuary and facilities because the day care made it investment worthy.
It is easy for a bank to approve a loan when the church makes $50,000.00 in positive cash flow from its day care on an annual basis.
History has shown that solely depending on tithes and offerings can be unreliable.
Why you should start a church owned business
The fact remains that many churches today struggle just to pay basic expenses such as rent and utilities using only the tithes and offerings received. This, in turn, results in the unnecessary stress that many pastors experience and, at times, may adversely affect the sermons preached from the pulpit on Sunday mornings.
(Recommended reading: "Stress-Free Preaching")
Since the government has made provisions in the tax code to allow churches and other nonprofits to receive passive income from a for-profit corporation, the question now becomes, “Why not take advantage of this benefit allotted to you and your church?”
When you begin a church owned business, the sky is the limit when it comes to generating income for the church.
Are you up to the challenge?
Please let this article challenge your thinking. Try to think outside of the box. Please feel free to share this article with other ministers and church leaders who you think will benefit from a church owned business. Have an ongoing dialogue with other ministers about what this may look like for your church.
Additionally, don't hesitate to call us at 877-494-4655 with any questions that you may have about your church owning a business.
And lastly, I want to invite you to attend one of our Ultimate Church Structure Conferences. During the conference we discuss why having a church owned business is ont of the best financial and stewardship related moves you can make for your ministry. I promise you won't regret it!