Late Night Dreams of a Pastor

By Raul Rivera

He stayed up the entire night thinking, meditating, and dreaming of all the things he felt his church could become. All night long he dreamt about three words  "Business . . . Business . . . Business."  It was as though the Lord was revealing to him its future and it was awesome.  This was a frequent event for Pastor Jenkins.  He knew God had called him to be different with the way he ran the young church of one year.  Not only was he going to be excellent in the way he managed the church, he knew that God's call on him as a pastor also made him the CEO of a corporation that would train its members to better lives through entreprenurial skills.  Yet, he was afraid of telling too many people about his dreams for the church because of what had happened the last time he shared them.  It was met with lukewarm excitement. 

Careful who you tell

Six months earlier, he had communicated his dream to his former pastor. He revealed how he saw a church that relied on sources of income from business ventures such as for profit businesses and entrepreneurial training centers.  He wanted to begin by starting a small café in the same plaza where the church was located.  It was a great location because approximately 27,000 cars passed by each day and the nearest café was 9 miles a way.  He knew that if the church took advantage of such a great opportunity, the café could be profitable within a few months of launching.

To Pastor Jenkins' dismay, his pastor's words, though well intentioned, cut him like a knife.  His pastor stated that business ventures do not belong in a church because they only serve as distractions, which take the church's eyes of Jesus.  That day, Pastor Jenkins felt deeply disheartened, and while he tried to re-center his focus on the traditional church model, it was only a matter of time before his dreams returned.  What was he to do?

Are you Pastor Jenkins?

Pastor Jenkins' story is not uncommon.  I believe that God has been raising up pastors all across America who think in ways that are mostly invisible to the world of church planting.  But, like Pastor Jenkins, many of these pastors get written off.  It is like they do not have permission to be different.  Today, I want to tell you that yes, your ideas are different, and yes, God has been directing them.  You have permission to express what God has placed in your heart and believe Him to bring them to fruition.

Pastor Jenkins did it

Not too long ago, Pastor Jenkins began the journey of launching the café.  He began by incorporating a for profit arm owned by his church and afterwards setting up the church's corporate ownership of the business.  He then launched a savings account to accumulate the cash needed to purchase the equipment and negotiate a new contract for additional space from the landlord.  Using our Ultimate Church Structure model, he will soon learn how to properly move cash from the church to the for profit arm.  It is early in the process, but he knows that he knows, God has placed it in his heart.  He learned that pastoring is not just preaching and counseling.  It is also leading God's people to be bold and courageous in this life and take carefully planned risks.

You can do it

I have always encouraged churches to actively pursue sources of income outside of the tithes and offerings.  In today's changing times, opportunities abound for churches to create alternative sources of income.  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.

Example 1:  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. 

Example 2:  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 students cooking and serving generate the restaurant sales.  Payroll costs are almost non-existent.

Example 3:  Church XYZ starts a day care center in a rented facility.  One employee and many volunteers run it.  The daycare has a goal to disciple children, with 62 children currently 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!

Example 4:  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 of duplicating.  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?

Owning a business makes the 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.  Banks are leery of churches that only have income through tithes and offerings.  History has shown that this type of income can be unreliable. However, if they see 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 wanted 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.

What about taxes?

When a church makes money from other business activities, there is the possibility that the church may have to pay tax on the profits.  This tax is known as "unrelated business income tax (UBIT)."  Many churches are under the impression that because the church may have to pay a tax, it cannot own or operate a business.  This is a misconception.  If a church engages in business activity that incurs UBIT, all it has to do is simply fill out Form 990-T each year and report its income and pay whatever tax is due. 

In order for a church to incur UBIT, it must determine if it has earned income from unrelated activities.  This can prove a little difficult sometimes.  Section 513(a) of the Internal Revenue Code defines Unrelated Business Income (UBI) using three key phrases as follows:

1.    Is the income substantially related to the church's religious, charitable, educational or other purposes?

2.    Is it a trade or business?

3.    Is it carried on regularly?

These three components must be present in your church-owned and operated business before it becomes taxable.  Of the four examples above, which do you think will be taxable?  It is possible that none of them will be taxable.  It all depends on the church's incorporation and application for 501(c)(3) status.  Is the activity covered?   That is why incorporating and obtaining 501(c)(3) status is more than just filling out forms.  It is about building a strategy that will allow the church to operate effectively and allow growth into other areas that may present themselves in the future.

Learn more at one of our Ultimate Church Structure Conferences!  Register Now!

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