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Hometown Community Church: Opportunities and Challenges of Continued Growth Mary E. Stone Sheri L. Erickson Minnesota State University Moorhead AUSTHAGT: Hometown Community Church is a not lor-profit (NFP| organization that is firbid with submitintel findit growth and he comspending cullingis hat come with increasing demand. Located in he Midwest, Hamilown Community Church fora grown dear I'm past smearal dacakes from in low ducan parishioner to a church with bou building sites and increasing dindinbi. As growth continues, Which idbimation in priceanled to help birdin the space crunch. The bariinch and accounting topics that this cise address inducks: * The middley and usulutrace of accounting information in NAP enterprise decision. *The nodd to make will-named and will analyzed fuidid when "business" is good, not just when "business" The analysis, in a NAP, of management decision-making acanaries, such in maks or buy, bidding asecond branch "sunny " and capacity corrinta. * The discindion of both quinttative and quilvit data in the decision-making process. Keywords: not-for-profit brushown arulpos; margin of sidity; relevant costs; nat prusaint value. INTRODUCTION 'I have determined that this schedule is not sustainable for me, " senior pinter Greg Smith informed the congregation after six months of preaching at muliple church sikes "It takes me at kind ten days in recspeak, physically emotionally, and mentally, after Sunday's the church acreies. Cemently I travel back and forth bebeen two Incdions on Sunday moming and preach three semmons within this brum. I still am committed to being a multi-site church community despic the wear and fear on my besly caused by the current working amangement. I am requesting that we mood in discuss our options " The Elder Board of Hometown Community Church lea called a congregationd meeting to discuss the situation and ack the input of church members and afenders The overall attitude among the parishioners is positive, and there in an overall desire be case the burden on their preaching padre while still maintaining cilledive Sunday morning services. BACKGROUND Heandran Community Church is a Christian church in the midweder United States. It is non-knewnational, me therefore does not have my other authoritative bealy meonceing is operation. Hiring, expansion, investment, and operations deenters are the reapemibility of the local church members Also, because Honclown Community Church does not label itsel in a qucilic deremington, the growth in attendance does not kind to crank from now residents in town whe me locking for church based on ceraminational brand. lakead, growth has primarily come from the community at large, doreen by the chandcritics of the service, the scream, and the other aderadoes Hrundown Community Church (HCC) was banned in 1979. Over the years, weekly allendares has grown from a be dozen people in today's attendance of around K50. The church net in a school gymnasium when it began, but has sine changed brewton and zizz a few times when HCC outgrew the gymnasium, a church building in the middle of the city the would seal 300 persons win purchased HCC expanded to han services at the mid-town location. Attendance continued in gumand HCC made plans to build a new church building, with seating capacity of 300, in the south part of the city. Before ground was broken, a different existing church building became available for purchase at half the cost of building. The design to build plans were abandoned, the additional building was purchased with a $1.8 million mortgage, and IICC became one church with two locations. Two services were to be held at the newer building, while one service was to be held at the original building. The first sermon would be at the new location at 9:00am, the second sermon would be at the original location at 10:010am, and the third sermon would be at the new location at 11:Olam. Pastor Smith enthusiastically launched the multi-site Sunday service schedule earlier this year. After six months of preaching at the multi-site venue, Smith approached the Elder Board with his assessment of the unsustainability of the current schedule. His physical and mental tall was mounting. While he was still in support of the multi- site vision for the church, the pastor requested that the elders and the congregation brainstorm some options. The church wanted to maintain a vibrant and healthy ministry for attendees and the community, yet alleviate the potential burn out of their preaching pastor. In March 2012, the elders presented the congregation with a summary of their overall analysis of three options. The options are: (1) hire a second preaching pastor, (2) rotate the preaching responsibilities by utilizing other non- preaching pastors and staff or volunteers to preach one of the weekly sermons, and (3) videotape the first sermon and playback the video to a subsequent church service that same moming. For each of the proposed options, the other parts of the church service-such as introductory music and worship, prayer, and announcements-would continue to be provided "live" at each service and each site. The only part of the church service that would change is the communication of the sermon. The data used by the elders in their analysis are provided in the next section. DATA Current Financial Data . Average weekly Sunday morning collections are $20,390 except for two weeks in December, which have historically shown a doubling of normal weekly giving. * Typical Sunday attendance is around 850 persons, split fairly evenly between the three services. HCC also hosts Wednesday night activities for both children and teenagers. In addition, IICC 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 an 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 that minister to people outside of the church body, $38,000. * Adult Discipleship Pastor, responsible for administering and overseeing programs that minister to adults attending HCC, $40,000. * Children's Pastor, responsible for administering and overseeing programs that minister to children through age 12, $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 percent. This amount is in addition to the other operating costs. HCC elders request that 10 percent of revenues be set aside each year as cash reserves for unexpected expenses and opportunities. Data Projections for Options 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 percent 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. " The average life expectancy for the video equipment is estimated at five years, except for the cameras, which have an expected life of ten 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. xcounting Lower in Accounting Education Volume 32, Number 3. 2017Hometown Community Church: Opportunities and Challenges of Continued Growth 131 TABLE 1 Initial Purchase Cost of Video Equipment Iten Cast Three cameras $21,500 HD projectors and adaptors $7.800 Video switcher $6.000 Hyperdeck shuttle SSD drives $4.750 Tripods/Heads $4.500 Zoom controls $2,850 VOA converlen $600 Monitors $550 SDI distribution $500 DVD player WHOMI $400 Sxs card,SD card ODE$ Ebert switch $100 Total $49.850 * The life expectancy of this additional equipment is estimated at five 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. * HICC has seen significant growth during its 30-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 either 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 five years is less reliable and growth beyond 1,000 attendees leads to the need for additional support staff in other areas. REQUIREMENTS Prepare a professional memo making a recommendation to the Elder Board. The memo should include an opening paragraph that states the objective of the problem and includes the alternatives available, followed by information that explains your recommendation and why you selected that course of action. Be sure to provide supporting documentation of the quantitative and qualitative factors that led to your decision. Your memo should address the following seven questions. Your memo, including any professionally formatted Excel tables, should be approximately ten pages, typed, single-spaced, Times New Roman, 1Ipt font. 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 an organization's mission measured in a for profit entity and a NFP entity? What might be some qualitative and quantitative measures? TABLE 2 Potential Future Costs of Video Equipment Item Cost Workstation for recording and editing video Monitors $250 Video card $1,000 Video software (Final Cut Studio) $300 Data storage server $2,400 3-monitor camera view board $1,000 Total $9.950132 Stone and Erickson 2. As organizations 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 that are 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, for each of the three alternatives for the coming five years. For each option, determine how many people must attend in order to breakeven 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 percent discount rate for Options I and 2. Option 3 introduces a new methodology for conducting the sermons and includes more permanent costs of fixed assets; therefore, a 10 percent 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? REFERENCES Anderson, L. W., and D. R. Krathwohl, eds. 2001. A Taxonomy for Learning. Teaching, and Assessing: A Revision of Bloom's Taxonomy of Educational Objectives. Boston, MA: Allyn and Bacon. Fessler, N. J. 2011. Dr. Livingroom, I presume. Issues in Accounting Education 26 (4): 807-814. doi: 10 2308/face-50055 Hughes, P. A. 2013. Sunshine Daycare Center: Growing a business to profitability. Issues in Accoowing Education 28 (21 323-335. doi: 10.2308hae0-50407 Roberts, A. A., and V. L. Zamora. 2012. One laptop per child: The $100 challenge. Issues in Accounting Education 27 (3): 799-817. doi: 10.2308face-50163