Tim McDermott “3 Business Musts For Successful Organizations”
I remember my first year at college. I was going to go into broadcasting. One of the guys in my dorm was Paul Martin who was the campus radio station manager. He gave me this advice – “You need to take business courses. Radio is a business and no matter what area you go into – you have got to know how business works.”
This advice was not only true a long time ago, but it is true now. Leaders have to know how to run a business. There is nothing worse for a ministry than for a leader making bad business decisions that hurt the ministry and put the ministry at financial risk. The other extreme is also bad – when a leader is so business bottom-line driven that the mission of the organization is compromised and personal ministry connection is lost – all for the sake of money.
Balancing ministry and business is a challenge. I believe you have to have a solid financial basis from which you can do ministry. Money can’t be the primary driver, but expenses have to be covered. As you lead your organization here are some solid business practices you should have in place:
1. 3-6 months of money in reserve. Do you have a reserve? I can’t think of anything financially more responsible for a ministry than to have an expense reserve. Life happens. Surprises happen. When you have a reserve, it gives you time to be able to regroup and not be in survival mode. Normally, money doesn’t automatically just stop coming in so three months may actually last a whole lot longer. To calculate this just take your annual operating expenses and divide by twelve and then multiply by the number of months you want to have. If COVID caused an unusual year, then go back to a more normal year to do this calculation. Each year when you do your budget, update your calculation. If you don’t have a lot of excess money to fund three months, make it a goal to begin to build a reserve adding a little each year.
2. Business insurance in place. One of the forgotten relationships as a leader is with your insurance agent. Too often they can be viewed as a salesperson versus a trusted business partner. I can’t tell you how many times insurance – or the lack thereof – played a key part in an organization. When something bad happens – a tower collapse, a major weather event that knocks the station off the air and impacts donations, a lawsuit or claim filed against the organization, etc. – one of the first people you should call is your insurance agent. In some cases, if you don’t call in a timely manner you lose your ability to file a claim! I have been surprised at how many things you can cover for such little cost. The key is to find an insurance agent you can trust and one who understands your business. Take the time to sit down with your agent. Tell them your plans, how you operate – and be totally transparent. For your equipment, give them a current list annually and make sure it’s covered at replacement cost. In some cases, it will take months to work through a claim, but I have seen many paid. I have also seen legal issues that would have cost an organization tens of thousands of dollars handled by insurance companies and cost basically nothing. I don’t sell insurance, but I am believer that it really helps. If you have a board, make sure you get Directors and Officers insurance. Almost every board member I have asked to join an organization wants to know you have it. It protects them and the organization and it’s not very expensive.
3. Competent accounting. In my travels across the US, I have had a chance to see a lot of books. And can I tell you, that a lot of the numbers are not correct rendering financial reports basically useless. There will be negative numbers where there should be positive numbers, cost of goods sold calculations for ministries that have no cost of goods sold, “Ask My Accountant” and “Miscellaneous” accounts with tens of thousands of dollars in their balances, and expenses included on the balance sheet. The result is the numbers don’t mean anything. Often there is a “story” of who is doing the books – a relative, a long-term employee who has not kept up with accounting changes, or someone who “inherited” the job because no one else would do it and they were good at math. Numbers have got to be meaningful for a leader to make meaningful decisions. When the numbers are wrong, it means bad decisions will be made. Spend the money to hire someone who has experience or outsource it. If you are nonprofit, it is critical you have someone who knows about nonprofits. The greatest risk for a nonprofit is having a donor restrict a gift for a purpose and then for accounting not to make sure the money was spent for that purpose. This could lead to serious consequences. Also, most nonprofits are required to file a 990 tax return. A competent person or firm needs to complete that return. Recently, the IRS has hired more staff as they suspect a lot of abuse is going on in nonprofit organizations.
In Broadcast Leadership for over 40 years, Tim is now a consultant working with GMs/CEOs and nonprofit leaders helping them solve challenges. He can be reached at Tim@TimMcDermottConsulting.com
