10-Minute Treasurer

Mistake #4 – Failing at Budgeting

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Churches and nonprofits have critical missions. The mission of the church is to save souls. The mission of a nonprofit is to make the world a better place. How can you make any progress on that mission without a plan? You can’t, and your budget serves as your plan in number form.

I’m a huge plan of Dave Ramsey. I’ve listened to him for years. Chances are that any my advice is probably something I heard from him or his team, but I’m applying it specifically to churches and nonprofits and their budgeting process.

Step 1 – Estimate Income

It is very common to just plug in the income at the end of the process. “Here are our expenses so this is what we need in income.” How many of your donors base their giving on your budget?

For most nonprofits, income is fairly predictable. Start by looking at the income for the last two or three years. Is there a trend? Is it pretty much the same each year or trending up or down? Giving the trend, decide on a number. That now represents how much money you have to allocate to expenses. Your estimated income in your Spending Limit.

Step 2 – Budgeting “Fixed” Expenses

Look through your budget. There should be a number of line items that are “fixed” in that they would be very challenging to change. For example, payroll is “fixed.” By default you usually have the same positions working roughly the same hours. It’s a big decision to cut or add a position. Here’s the ones that are normally fixed:

  • Payroll: Salaries/wages and benefits are the big ones. For salaries/wages, I normally budget a Cost of Living increase similar to inflation or the Social Security COLA. For health benefits or retirement benefits, those costs usually go up as well. Travel, continuing ed, and the like are usually not fixed.
  • Property: Insurance, utilities, lawn/snow, and regular maintenance are the usual ones. Insurance is what it is unless you bid it out. With the rest, you can usually see a trend for those costs.
  • Office & Admin: Legal/tax filings, software, office supplies, and membership dues are common. These will vary greatly from organization to organization. A United Methodist church pays roughly 15% of their income as dues into the denomination while a Global Methodist church pays a fraction of that amount. A nonprofit usually has a hefty bill for filing their 990 tax return while a church usually only files W-2’s and 1099’s.

Step 3 – Budgeting Discretionary Expenses

Take your Estimated Income and subtract the Fixed Expenses. This is all you have left for budgeting discretionary expenses. What are discretionary expenses? Not everything can be a fixed expense. Think of those expenses that you would most readily cut if income was down. Those are discretionary expenses. In a church, usually these are the Program expenses.

How you allocate it depends on priorities. I have heard of some organizations giving the same percentage increase (or decrease) to all programs. In others, each program does a budget worksheet to plan their need for the year, and then the budget group tries to make it all work best they can.

Step 3a – Extra Money

Some of the best creativity I’ve seen in ministry is when there is some “extra money.” I remember walking with the kids by the creek one day and we find $20. If this money would have been in my wallet already, it would have been budgeted for already and not up for debate. Since this was “extra money,” there was a world of possibility…which ended up being ice cream at Zesto.

If you are able to make a habit of carving out maybe that 10% of that discretionary money, and ask yourself this, “If I were to invest this money into our ministry, how would it make the biggest impact?” If you don’t have any ideas currently, just bank that extra 10% into savings. I like this idea, and I can’t remember who I’m stealing it from. When I’ve done it, I’ve been blessed. When I feel like I don’t have any margin for extra money, that’s usually a bad sign that I have income problems that I need to address.

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