ArticleWhat Is Church Cash Flow

article what is church cash flow


Church Cash Flow, or "Banker's Cash Flow," is one of the most important ratios to track for any Church. Learn how to track Church Cash Flow and be empowered.
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Church Cash Flow is one of the many factors a bank may consider when you apply for a church loan. CPAs and others in the financial industry have referred to this calculation as “Bankers’ Cash Flow.”

Of all the calculations lenders look at when considering a credit request, this is the most important for any Church to monitor. A lack of sufficient Church Cash Flow could be an early sign of an organization failing within two years.

Even if you don’t have a loan currently, if you may need to finance growth in the future, monitoring the cash flow generated will put you in a stronger financial position for the loan.

Fortunately, once you get the concept of calculating Church Cash Flow, the calculation is pretty simple.

This quick lesson will walk you through a few concepts behind cash flow. To dive deeper into the lesson, use the tool provided to estimate a low and high loan amount based on the total church cash flow generated in a year.

What is Cash Flow?

Typically, in financial matters, cash flow refers to an accounting term. In the case of a loan, cash flow refers to the cash generated from operations, available for serving the debt. One difference between the accounting and lending reference is that the lender is concerned about repayment. Can the organization generate enough cash to pay back the loan?

Because the calculation originates from the banking industry, non-bankers in the financial industry may refer to this as Bankers’ Cash Flow. Because I am speaking to Churches here, I am referring to it as Church Cash Flow.

Illustration of two men looking at graphs representing key ratios from business activities.

Cash From Operations

As a Church, operations refer to the donations (“income”) and services (“expenses”) provided to the community. However, Church Cash Flow is more than just the retained donations (“net income”) after paying for services provided. It considers the recurring income and expenses while excluding the non-recurring income and expenses to determine the “normalized” cash flow amount for that fiscal year.

Financial Statement Period (Timeline)

The fiscal year is the annual period for the organization. Typically, the fiscal year is a standard calendar year, January 1 through December 31. However, when the primary source of income is seasonal, the fiscal year is adjusted to match. The most common case is with a school that will set the fiscal year to July 1 – June 30.

To ensure that the calculations are as accurate as possible:

  • Be sure to provide statements for your organization’s fiscal period.
  • When providing interim statements, begin on the first day of the current fiscal year and end on the last day of the most recent month’s end.

Interim Statements

An underwriter will want to see how the current fiscal year compares to the prior years. In this case, they will ask for interim statements. In contrast to a fiscal year, the interim statements are for part of the fiscal year.

For a standard fiscal year, an interim statement might include the period of January 1 – August 31. The key is that they should consist of only the time that has passed in the current fiscal year. For example, if today were May 10, 20xx, and the Church had a standard fiscal year, the interim statements should be prepared from January 1 – April 30. Notice that I did not include May.

The interim statement should include up to the last month’s end, not mid-month. If I included the mid-month information in the financial report, it would distort the calculations.

General Funds vs. Restricted Funds

If you look at Illustration A below, I have created a simple Profit & Loss Statement, breaking out the General Fund and Restricted Fund.

Because Restricted Funds are not available for the mortgage payment, they are generally not included in the Church Cash Flow calculation. To calculate Church Cash Flow, we need to focus on the General Funds and can almost ignore Restricted and Total income.

Capital Campaign income is an example of a commonly restricted item. With restricted items, the funds are released into the General Fund once the criteria for the restriction are met.

In Illustration A, you can see income from the Capital Campaign under the Restricted Fund. A few rows down, in the Release from Restriction row, the qualifying amount is released from the Restricted Fund ($x.00) and moved to the General Fund $x.00.

Let’s say the campaign was for a new kids’ play area to see how this might play out in this scenario. The contractor installing the equipment has asked for a deposit. The deposit expense is incurred and recorded under the General Fund expenses. By releasing the qualified portion, the budget remains intact.

I’ve also seen financial statements prepared so that all Restricted Income and Expenses are in the Restricted column. Because it is up to the preparer to determine how to record your income and expenses, I suggest you have at least a cursory understanding of how your financial statements are prepared. It shows the lender that you are a strong leader who understands what is going on in the Church (financially).

Again, because Capital Campaign funds are 1) not recurring and 2) restricted, the funds are not considered qualified income for the Church Cash Flow calculation. To prevent your Church Cash Flow from being understated, it is essential to report corresponding expenses appropriately.

Sample Profit & Loss Statement with restrictions
Illustration A

Calculating Church Cash Flow

The formula is simple and commonly expressed in the acronym EBITDA -, + Non-Recurring, which stands for Earnings Before Interest, Taxes, Depreciation, and Amortization, minus Non-Recurring Income, plus Non-Recurring Expenses.

EBITDA is the standard commercial lender formula. The “-, +” portion is something I’ve added to represent the steps a lender takes to calculate the “normal” Church Cash Flow. These items have a useful life greater than a year and are usually more significant purchases paid from savings. The goal of the adjustments is to account for accounting steps that were not done, such as with Non-Capitalized expenses and other unique events that may have taken place in that fiscal year.

When I note Non-Capitalized expenses, I am referring to expenses that can be capitalized but, for one reason or another, are showing on the Profit & Loss Statement. Such as A/V systems.

During COVID, many churches upgraded their A/V systems to improve or start streaming services online. Equipment like this typically can be capitalized. Generally speaking, capitalizing the cost places them on the Balance Sheet as an Asset and removes it from expenses for that fiscal year. Instead of reducing net income, it reduces cash.

In another example, let’s say there was a storm in the area that caused damage to the roof. After working with the insurance agent and contractor, the repairs are done, and you soon receive a reimbursement check from your insurance company for the covered amount.

The costs reimbursed (covered) would be deducted as Non-Recurring Income, and the actual costs paid would be added as Non-Recurring Expenses.

Some lenders take a more cautious approach and treat Non-Recurring Expenses as regular expenses, especially with Non-Capitalized costs. The result is a reduced Church Cash Flow total, affecting your ability to qualify for the loan “today” and could affect your ability to keep the loan in the future.

Because I think good Church Lenders should include Non-Capitalized Expenses, the lesson tool will have a place to see how it can affect total Church Cash Flow. For example, if you have a lot of Non-Capitalized Expenses at the end of the fiscal year, and the lender does not add them to your Church Cash Flow calculation, the total is weaker. If it is diluted enough, it could trigger a Covenant.  Each lender deals with covenant violations differently, but you could expect a higher interest rate until cash flow is improved, up to forclosure.

Before we break down the formula, I want to note that the terminology I am using purposefully leans towards For-Profits. The For-Profit terms are more widely used in the industry and with most accounting software, such as the popular Quickbooks. My goal is to equip you to understand the subject matter and effectively communicate with your lender. For this reason, I will continue using the For-Profit terms.


When you see earnings, think “Net Income.” However, look at the General column, not the Total column. You don’t want to include Restricted Funds in the calculation.


In this case, “Interest” is a placeholder. If you currently rent/lease property and are requesting a loan to purchase a property, then you would add that expense line item here. However, if you already have a loan and are either refinancing or buying a new property to move into, the mortgage expense from the Profit & Loss Statement would go here.


Taxes refer to income taxes paid. For most Churches, if you are paying income taxes, it would be under Unrelated Business Income Tax (“UBIT”), income received unrelated to the core function of the Church.

Historically it has been uncommon to see UBIT, but as the Church is finding new ways to connect with the community, I expect to see UBIT more often. If you are not paying UBIT currently, be sure to talk to your tax preparer to verify if you should be paying.

Depreciation & Amortization

Depreciation and Amortization are considered “non-cash” events. They are expenses for tax purposes only. No actual cash paid out. For this reason, most Churches do not calculate Depreciation or Amortization.

If you do track Depreciation, I suggest using the figure as a reference to set aside funds earmarked to replace equipment in the future. For Churches that do not track Depreciation, I’d recommend using some method to set aside funds.

Non-Recurring Income

As noted above, Non-Recurring Income is income you do not regularly receive, such as Capital Campaigns and Insurance reimbursements. Non-Recurring means the income source should not be relied upon for the loan repayment.

Since we are specifically looking at the General Fund, if the Non-Recurring Income is under the Restricted column, as in Illustration A, you don’t need to deduct the income. It is already set aside.

Non-Recurring Expenses

We have arrived at the final part of the formula, Non-Recurring Expenses. These items can vary but typically include Non-Capitalized Expensesproperty damages/improvements, and any other expense that is not recurring.

Notice that I did not include Capital Campaign-related expenses. In Illustration A, the funds are released from restriction to cover these expenses.

As I noted before, not all lenders will add these items back. When a lender includes Non-Recurring Expenses in the calculation, clarify what items they allow. It is ultimately up to the lender to decide which Non-Recurring items they will allow. Good communication with your lender is vital.


The image below illustrates how the calculation might look in your spreadsheet software.

Sample cash flow calculation
Illustration B

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