How to Measure Your Church's Financial Health

Written by Pastor Darrell Mims on Nov 04, 2021 in Finance Management

Read Time: 4 minutes

For years, I have worked in accounting, financial planning and analysis, mergers and acquisitions, and treasury. I have used many different financial ratios to evaluate the strength or weakness of a company's financial position. Most ratios can tell the story of how an organization is doing financially. For me, looking at financial statements and crunching a few numbers tells me a lot about the state of stewardship in a company. 

The numbers, however, do not tell the whole story. There is always a qualitative narrative that also needs to be investigated, but the numbers can be a door opener for understanding the health of an organization. 

When a church applies for a loan, the lender will run ratios to determine the church's health. If the church is granted the loan, the lender will probably require the church to maintain or exceed specific financial ratios in order to keep the loan. These terms are usually included in the loan covenant between the church and the lender. 

Financial ratios lenders use

Some ratios that lenders use to measure the financial performance of churches:

The current ratio (current assets minus current liabilities) tells the organization's capability to pay its short-term debt.  

The interest coverage ratio determines the solvency of a company. Taking the earnings before interest and taxes and dividing by the interest expense outlines how many times the profits earned can cover the interest-related expenses. 

Return on capital employed (ROCE) determines the profitability of an organization with respect to the capital invested in the business.

Return on salvations

When I left the secular world to become CFO of a church, these same ratios were important, especially since I had to bid our banking relationship every few years to ensure we were getting the best strategic partner for our business. When looking for a great banker for your church, you are also looking for a strategic partner to keep you focused on your church vision.

We know exactly what our banker's expectations are financially and what our church needs to do to meet them. What is the best financial ratio for your church executive staff to evaluate the decisions they are making? It became evident that the best financial ratio for our church was Return on Salvations (ROS). I am pretty sure this ratio is not in any business textbook or taught at any university. However, it is the primary ratio that the New Testament teaches through Jesus. How does it work?

Similar to ROCE, as you employ resources, you want to determine the present return (or the number of people confessing Christ) per the resources used for a particular event, activity, or project. 

Some examples include:

A church youth spring break weekend costs $10,000 for the weekend. During that weekend, 50 students give their life to Jesus; the return is .5%.  

If you conduct a revival service for $25,000 and 500 people confess Jesus, the return is 2%.  

If you support 25 missionaries around the world for $250,000 and 20,000 people give their life to Jesus during the year, then the return is 8%.  

Based on these three potential spending projects, which one do you do? Of course, if you have the $250,000 to spend, then you send out the 25 missionaries.


Church buildings

This calculation becomes more difficult when you want to spend money on church buildings. The primary purpose of building a church campus or facility should be to equip the church attendees to carry out the ministry of Jesus. As attendees are equipped and share their testimonies, more people will claim Jesus as their Lord, increasing the ratio. That means the cost of the building should have a direct correlation to the number of people equipped to disciple, which will eventually result in an increase in the number of people receiving salvations over a period of time. Once that ratio starts to plateau or decline, it is time to brainstorm new ideas and potentially bring in new leadership to reverse the trajectory of the ratio.

Further reading: Are You Ready for a Building?

Spending tithes and offerings

The most challenging decisions that a church executive team makes concern where to spend the tithes and offerings of the congregation to meet the church's vision. Many churches will make the net large enough that any expenditure can be directly related to the vision. We all know that is not true. What if churches made decisions based on what spending resulted in the largest ROS (Return on Salvations)? This would mean more people entering into God's Kingdom and fewer dollars spent on t-shirts, food, and events that make us feel good. 

What if spending would not even be approved unless it exceeded a stated ROS rate of 5%? I know that is low, but we have to start somewhere. Many businesses make these approval decisions daily, and that is why they are successful. We are God's church, and we are harvesting the most precious of all commodities: SOULS.  

For the past few decades, there have been many new church campuses built with the goal of leading people to Jesus. It would be interesting to see how many of them are still increasing their ROS, which starts with equipping disciples. My gut tells me that this number has stagnated or is declining for most churches. Due to COVID and the limitations churches were under for the last year, this is the time for churches to reset, innovate, and explore new avenues to invest financial resources to get a high ROS number.  

Investing in the ultimate mission

In my opinion, investing in technology, staff, and volunteer leaders who are creative in using technology is where churches should employ the next round of capital to increase salvations. Our neighborhood churches are no longer the perimeter for churches to exert influence. Jesus thought big, and we need to do the same thing. We can now see our field for harvesting as cities, states, and countries. Let's use the ROS ratio to make an eternal impact for the Kingdom. When your executive team evaluates multiple uses of financial resources, invest in the ones with the highest ROS. 

At StartCHURCH, we understand that, as ministry and church leaders, you carry many responsibilities on your shoulders—including managing your finances. With our Bookkeeping Service, we will take the load off and help you steward your finances with excellence so you can fulfill the mission God has given you. To learn more, please give us a call at 877-494-4655 or click the link below to schedule a call with a specialist! 


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