Why is a business model important for a ministry?

The first priority for the new executive director of any ministry is to understand the organization’s business model. For most of us, working on the program is more fun, but the executive director has a unique role in guiding how money is raised and spent.

After a friend and fellow executive director gave this advice to a new executive, I quickly adopted her approach. I follow that with additional advice — the executive will eventually need to understand the overall economic situation of all the people involved in the ministry. But the start is the revenue and expense model.

“Business model” is language seldom used in ministry. Although it is basic, most ministry professionals have very little experience with reading, much less interpreting, financial statements. They often trust that others in their organization will handle this. My friend believes such an approach does not work.

The essentials of the business model are best captured in financial statements. What are the revenue sources? Fees, contributions by individuals, grants from foundations or sponsorship by organizations are the most common types. What does the ministry need to do to generate more?

Each type of revenue requires different types of activities — a gala or golf tournament for some donors, in other cases specialized grant writing tailored to certain foundations. Charging fees requires understanding what those served can afford to pay as well as the practical aspects of invoicing and collection. Generating revenue, therefore, creates expenses directly related to the type of revenue.

A critical element in the revenue model is the organization’s tax status. New leaders often don’t understand that there are different types of nonprofit tax status. Each has different rules it needs to meet in terms of types of revenue. I am supporting two organizations that are currently investigating their type of 501(c)(3) status and how to appeal to change it. Foundations frequently ask to see the organization’s IRS issued determination letter to verify the organization’s specific status. I keep a copy of Duke University’s determination letter in my files.

The business model also considers the organization’s expenses and the activities supported. The largest expense is programming — perhaps it is training or supporting unhoused people or providing worship. For organizations with employees, often half the budget is allocated to salary and benefits. Some of the employees provide direct services, while others support different aspects of the ministry.

Every section of the financial statement has a story behind it. The executive director is often the primary interpreter of these stories. A new person must learn what the story has been. Mastering the stories of the business model gives certain stakeholders added confidence that the executive director was a good choice for the job.

Years ago, I started a training and consulting service for congregations. Initially, 100% of the revenue came from the sponsorship of a single state-level denomination. Our ministry was essentially a subsidiary of a teaching hospital. Weaving a story that included a hospital with 5,000 employees and a denomination with 4,000 congregations into a coherent narrative about the importance of congregations required constant attention.

As the ministry grew, fees generated by training and consulting increased substantially. After years of work, the denomination’s sponsorship was roughly the same dollar amount, but it was now about 25% of the revenue. A sponsor that provides even 20% of the revenue has an outsized impact on the sustainability of a ministry.

After more than a decade, the denomination no longer recommended the ministry to its churches, but it continued to provide money. That is a worrisome circumstance. As the executive, I monitored the situation and worked hard to change it. I could not make progress and ultimately passed the challenge to my successor.

There are many Christian traditions that emphasize the power of the Spirit and the role of faith in their account of their business model. “The Lord will provide” is the headline of these stories. The executive can both believe in God’s provision and seek to understand the human means through which God provided.

As my friend said, an organization’s senior leader needs to thoroughly understand the business model and how all the money flows. Beyond that, I encourage executive directors to expand their consideration to what might be called the economic model of the ministry. This involves considering the economic well-being of everyone involved in the ministry. Who is doing the work? Who are the partners? Who are the beneficiaries? How are each of these people supported financially?

The story of the economic model includes all the information in the business model along with the stories of the people. Why is this important? If the organization provides both ministry to a community and a livelihood for employees, then these responsibilities need to be balanced. If the ministry provides an opportunity to do ministry that does not involve a paycheck, then the numbers on the financial statement do not tell the whole story.

The economic model provides clues about how a ministry can expand as well as when the model has reached its limits and needs to be reinvented. The people involved often experience strain before it shows on the organization’s financial statement.

In Leadership Education’s work, we currently serve about 50 smaller organizations that minister to pastors or congregations. Many of these organizations launched with volunteers who had a vision and bootstrapped the ministry. They “financed” it with their time and often with their own meager resources.

This is a beautiful witness. And in most cases the ministry needs to remain small to be sustainable. Growing the ministry puts significant stress on all the leaders and their families. If growing is the next faithful step, then the economic model must be reinvented. The work of leading the organization shifts from doing ministry to creating the conditions for the ministry — raising the support required for those that do the ministry.

Launching a ministry is often a calling, rooted in hope for God’s provision. It requires vision. Sustaining a ministry across time likewise relies on vision and hope. And it requires money. The economic model provides distinct and important perspectives about finances. Part of the model can be captured in charts, graphs and spreadsheets. But understanding the model fully requires listening to the stories woven into the numbers.

I think my friend is right. The executive director is most often the person with access to all the information necessary to keep watch over the economic model for the organization. The new executive begins by learning how the money flows and why. This understanding then helps the executive pay attention to opportunities and threats to the ministry and its people.