Assignment: Current Financial Data
• Average weekly Sunday morning collections are $20,390 except for two weeks in December, which historically have shown a doubling over normal weekly giving.
• Typical Sunday attendance is around 850 persons, split fairly evenly between the three services. Community church also hosts Wednesday night activities for both children and teenagers. In addition, Hometown Community Church strives to serve its community by being involved in serving at a local soup kitchen, outreach to the homeless community, serving at local food pantries, and serving incoming refugee families. The church does not want to see their outreach to the community decrease and, therefore, $100,000 in annual outreach obligations must be met before any additional funds can be spent on additional capital improvement or expansion.
• The paid pastoral staff includes the following positions with salaries and benefits:
* Senior pastor, responsible for preaching, $80,000.
* Worship pastor, responsible for planning and leading music ministry, $45,000.
* Youth Pastor, responsible for administrating and overseeing ministry to teenagers, $45,000.
* Reaching and Sending Pastor, responsible for administering and overseeing programs which minister to people outside of the church body, $38,000.
* Adult Discipleship Pastor, responsible for administering and overseeing programs which minister to adults attending HCC, $40,000.
* Childrens' Pastor, responsible for administering and overseeing programs which minister to children through age twelve, $42,000.
• Yearly operating costs (excluding the salaries, benefits, and outreach obligations) are $200,000 at the old site and $175,000 at the new site. In addition, HCC is paying the $1.8 million mortgage monthly over 20 years at 5.45%. This amount is in addition to the other operating costs. HCC elders request that 10% of revenues be set aside each year as cash reserves for unexpected expenses and opportunities.
Data Projections for Option 1, 2, and 3:
• The estimated cost to staff a second preaching pastor is $85,000 per year in salary and benefits.
• The elders have determined that additional administrative expenses equivalent to 10% of non-preaching pastors' salaries and benefits would need to be incurred if option #2 is chosen.
• The estimated costs for purchasing and utilizing video equipment are listed in Table 1.
Table 1. Initial Purchase Cost of Video Equipment
|
Item
|
Cost
|
|
Three Cameras
|
$21,500
|
|
HD projectors & adaptors
|
$7,800
|
|
Video Switcher
|
$6,000
|
|
Hyperdeck Shuttle / SSD drives
|
$4,750
|
|
Tripods/Heads
|
$4,500
|
|
Zoom Controls
|
$2,850
|
|
VGA converters
|
$600
|
|
Monitors
|
$550
|
|
SDI distribution
|
$500
|
|
DVD player w/ HDMI
|
$400
|
|
Sxs card/ SD card
|
$300
|
|
Ethernet switch
|
$100
|
|
TOTAL
|
$49,850
|
• The average life expectancy for the video equipment is estimated at 5 years, except for the cameras which have an expected life of 10 years each.
• Cost of building a room for video equipment at new site: $17,500.
• Potential Future costs for adding data storage and video editing capabilities are listed in Table 2. These expenditures are not needed initially, and can be delayed two years in the future.
Table 2. Potential Future Costs of Video Equipment
|
Item
|
Cost
|
|
Workstation for recording and editing video
|
$5,000.00
|
|
Monitors
|
$250.00
|
|
Video Card
|
$1,000.00
|
|
Video software (Final Cut Studio)
|
$300.00
|
|
Data Storage server
|
$2,400.00
|
|
3 monitor camera view board
|
$1,000.00
|
|
TOTAL
|
$9,950.00
|
• The life expectancy of this additional equipment is estimated at 5 years, except for the workstation, which has an indefinite life.
• The weekly operation of the video equipment would be provided by church volunteers. Most of the service depends upon volunteers. Most of the musicians, technicians, ushers, greeters, childcare workers, and Sunday school teachers are not paid staff. This would be another area that would draw upon the pool of volunteers to staff this ministry.
• Hometown Community Church has seen significant growth during its thirty year history. Therefore, after significant discussion, the elders estimate that growth in attendance will be 30 persons each year (cumulative) for the next five years if option 1 or option 3 is selected. Revenues received are expected to increase proportionally. No growth is foreseen if option 2 is selected. Forecasting beyond 5 years is less reliable and growth beyond 1000 attendees leads to the need for additional support staff in other areas.
Requirements: Answer the following questions, using complete sentences and supplementing with tables or excel spreadsheets where necessary to document your calculations.
1. What are the similarities between the mission of a church and the mission of a for-profit business? What are the differences? How is the successful achievement of organizational mission measured in a for-profit entity and a NFP entity? What might be some qualitative and quantitative measures?
2. As businesses grow they face new challenges, particularly when operations expand to more than one location. Discuss several potential challenges of "decentralization" as they relate to Hometown Community Church.
3. The Elder Board outlined three options available to alleviate the problem. Identify and describe other options that could be considered by the Board.
4. Using Excel, prepare a one-year cash flow analysis of HCC's current annual operating cash flows before considering any of the options presented by the elders. Include an analysis of the estimated annual cash inflows, outflows, and net cash flow. Present data in total and per attendee. Determine the breakeven point and margin of safety (in number of attendees).
5. Provide a cash flow analysis, similar to the analysis of the current year prepared in the prior question, of each of the three alternatives for the coming five years. For each option, determine how many people must attend in order to break even for all five years, in addition to the margin of safety (in attendees) for each year based on projections.
6. Calculate the net present value (NPV) of each option. In order to cover the cost of debt, the operating costs and the projected growth, assume an 8% discount rate for option 1 and 2. Because option 3 introduces a new methodology for conducting the sermons, the growth projections are more soft. Also, option 3 includes more permanent costs of fixed assets. Therefore, a 10% discount rate is appropriate for option 3. In addition, for each option determine the smallest yearly attendance growth that will make the option viable.
7. What additional types of information, including qualitative measures, would you need in order to assess the validity and appropriateness of each of the three options? What additional questions need to be answered in order to make an assessment?
8. Prepare a professional memo making a recommendation to the Elder Board. Address each of the previous seven questions. Be sure to provide supporting documentation of the quantitative and qualitative factors that led to your decision.