Sometimes church are criticized for having so much of their budget go for personnel, buildings, and administration. Sometimes church leaders (and especially the pastor) feel guilty about this too. On average, about 80% of a church’s budget goes towards these things. Church budgets rarely include estimates for designated giving although churches plan on and depend on designated gifts for youth activities and to support missionaries and to feed the hungry. Why not include designated gifts in the budget? It’ll make your church’s budget look better and may more accurately show your ministry strategy.
Like individuals and families, the church also needs an emergency fund. Assuming that the Holy Spirit hasn’t told you specifically otherwise, not having an emergency fund doesn’t show your reliance on God. It shows your lack of respect for the work of God. Emergencies happen…COVID-19, flooding, fires, and tragedies happen. Do you care enough about Jesus Christ to prepare for the emergencies so ministry doesn’t have to go on hold while you scramble to respond? I walk through how to actually build an emergency fund.
The other danger is for these emergency funds to take on a life of their own. A lot of church trustees have a savings account or checking account that acts as an emergency fund. I’ve heard plenty of stories where the trustees abuse their control of these funds to try to control the mission of the church. That’s an issue that can be solved as well by getting clarity on the purpose and use of those funds. Sheri Meister of the Dakotas United Methodist Foundation addresses this in a recent webinar.
For those of you that are Dave Ramsey students, you probably appreciate the value of an Emergency Fund. This is useful when the car breaks down or you lose your job or if the furnace dies…in January. But what about those smaller emergencies that you haven’t planned for? When you have unexpected company and need to buy extra groceries or you finally run our of printer ink or the school fee you forgot about?
These aren’t exactly emergency-fund worthy so how do we care for them. Most churches just allow all their programming staff to pad their budgets to be prepared. Actually, if you’re the one program that fails to pad your budget, what do you do when the unexpected happens? I like Steve Stroope’s strategy of removing the padding and creating a simple process for when programs have an unexpected expense or opportunity. In this video, I illustrate the strategy:
For many churches, the program committees and staff worry about running the programs while the treasurer and finance committee worry about the money spent to run the programs. There is a constant tension here that isn’t altogether negative. Where it turns negative is when programming ignores the concerns of finance or finance ignores ignores the concerns of programming.
“People support what they help to create.”
Randy Hedge, Pastor of Madison UMC
That quote by Randy is key. How do you include the program committees and staff in the budget process? What are some helpful tips to getting good budget requests from these groups?
After you calculate the bottom line…how much income your church can expect to receive, the next step is to tackle the fixed costs: Personnel, Property, and Denominational Dues. In a typical church, these costs account for 75-85% of the operating budget…so it makes sense to tackle them first.
One thing to keep in mind is that these costs are not necessarily set in stone. As the church’s strategy for ministry changes, this often affects the staffing and property needs. But, for the most part, these are pretty stable from year to year. The most difficult part of this section is the decision on giving raises to church staff. Are they being paid a competitive rate…or even a legal rate? If we can’t afford a large raise, is there anything else that churches can do to tangibly show their appreciation?
The most disheartening and discouraging thing a church can do is adopt an unrealistic budget because you are planning to fail. Why is it that churches tend to abandon all common sense and reason when it comes to budgeting? They budget $100,000 in income and expenses knowing full well that they never bring in more than $90,000 in income.
When you challenge them on this, the most common response is, “This is where you need to have faith.” Didn’t you have faith last year when you fell short? And the year before that? They’re obviously not talking about faith that the income will come in. Is it faith that the church board will once again approve a crappy budget? A realistic budget doesn’t start with knowing what you want to spend, but with knowing how much you money you can expect to receive.
I am a believer that many churches’ future is determined by their chart of accounts. The chart of accounts shape the church leaderships view of their finances and affect their decisions. A confusing chart of accounts leads to confused decisions. I know there are many exceptions, but the chart of accounts is one of the hidden forces either helping or harming your decision-making ability.
Sheri Meister (Executive Director of the Dakotas United Methodist Foundation) and I identify three steps in this video to cleaning up your chart of accounts. 1)Cleaning up the old stuff by either chucking it or renaming it; 2)Making sure every account has an owner; and 3)Using the roll-up (sub-account) abilities of your accounting system. Do these things, and you will greatly help your leadership in making good decisions.