One question we are commonly asked this time of year is whether or not a church can have net income at the end of the year.
The quick answer is yes. A church can end the year with more income than expenses.
Now to the specifics.
As a nonprofit, there are certain rules to meet to maintain that status. Essentially, to be a nonprofit, any net proceeds at year end cannot be distributed to anyone either corporately or individually. What that means is that you cannot disburse any net income to board members, trustees, elders, church members, staff members, etc. Basically, Net Income equals profit and what protects your non-profit status is that there is not a person or entity that benefits from the profit of the organization.
That also means that you cannot disburse those funds to the pastor or staff as a gift, enticement, compensation, etc. You may provide your staff with year end gifts, but be sure you check my previous post about how to disburse those gifts.
So what can you do with those funds?
Essentially, they are available for the church to use as Operating Capital, either year end expenses or into the next year. There is no criteria setup as to how much can be kept from year to year, but some common stewardship principles can be implemented and used to determine how the funds will be managed.
Here are some ideas.
Equipment –
Is there any equipment that the church may need for the upcoming year? This is kind of the wish list stuff.
Do you need a better sound system, more speakers, instruments, etc.? Can you use a bigger, better, faster computer?
At the last church I served, I was given a list of “wish” equipment and I was tasked with a budget to be spent to get as much as possible. I purchased an ice machine, some computers, sound equipment, etc. which were all things to make our ministry better, but weren’t necessarily budgeted for the year.
Operating Reserves –
This may be a good time to setup an operating reserve fund. This would be “rainy day” money.
The amount of funds to be kept can be determined by your board or leadership but should be considered a few months of operating income plus extra surplus for unexpected expenses. How these funds will be used should also be determined. These should be used for delayed payments, unexpected repairs or economic conditions, not income shortfalls. Basically, these are to solve timing problems, not deficit problems.
Generosity –
I would be remiss to not mention using these funds to be a generous church. Remember what Jesus said in Matthew 25:14-30. We are to be good stewards of the money the master has entrusted us with. He expects us to be useful with those resources and not hoard them.
Are there other ministries in your community struggling financially? Can you bless them?
Are there missions or missionaries you are supporting? Can you bless them?
Are there ministry opportunities you have passed up because of the cost? Can you be a blessing?
Keep in Mind – Money on Paper vs. In the Bank –
Through all this though keep in mind, just because you are showing Net Income at the end of the year doesn’t mean that you have Carte Blanche to go on a spending spree. Keep cash flow in mind. Businesses get into trouble all the time because in their financials they show money being made, but the cash flow doesn’t equal that. Be mindful of the cash flow needs of your organization when factoring any year end expenditures.
Ultimately, Net Income for a church is not a bad thing. So long as the money is used congruently to your mission as a ministry, these funds can be used for the ministry.
Resources:
https://grantspace.org/tools/knowledge-base/Nonprofit-Management/Sustainability/operating-reserves
There are a few things I didn’t get into which may affect your church that should be considered on an individual basis. Things like Unrelated Business Income could cause issue with this. This is meant as general information but the facts of your individual situation should be considered with a qualified individual.
