Gallup did a poll some years back and found that 33% of households kept a formal budget.The adopting and living by a budget is really the first step for anyone wanting to feel more secure in their finances. The same is true for the church. While the vast majority of churches adopt a budget, few live by that budget.Why is that? Because most of them adopt a bad budget. The budget is usually unrealistic, doesn’t support the church’s vision, and feels like a waste of effort.
In our work with churches, Sheri Meister and I have identified three principles that will change the way you budget.
Know your bottom line: You’re not the Federal Government so you can’t spend money you don’t have.
Include your long-term goals: You should be looking forward to more than just surviving the year.
Tell your story in numbers AND words: Go through the exercise of creating a narrative budget.
The first two will honestly be the most difficult and bring the most resistance. You will have to push forward because your church’s financial future depends on it.
As an accountant, I love a line item budget. It speaks to me as clearly as a short story, but I’m in the minority. The vast majority of people need to hear the story in order to understand the budget. They don’t need more numbers. How do you transform your budget into a meaningful story about how your church is and is planning to impact this world? That’s what I walk you through in this video.
A narrative budget is a lot of work. Is it worth it? If a narrative budget helps you align your budget to your mission and helps your congregants see how their giving is making a difference, what is that worth? That’s like hiring a leadership consultant mixed with a capital campaign consultant which would normally costs thousands.
Endowments are one of the best gifts you can give to a church yet they are largely misunderstood. Sheri Meister and I go over the details on how exactly endowments work and why they are such awesome gifts.
In the Dakotas, the simplest way to think of an endowment is to imagine someone gifted you some farmland. The farmland holds its value while still generating income from the church. That is how an endowment works…except without having the pain of being a landlord.
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.
I had been wringing my hands at how difficult the SBA made the first Paycheck Protection Program Loan (PPP) Forgiveness Application. It was like they had asked the IRS for advice. The EZ application cuts it down to only one page of numbers. Without a doubt, your bank will be asking you for more proof, but why would you make it so complicated to ask “How much of the loan did you spend?” That isn’t something that you need pages of worksheets to answer.
The vast majority of churches should qualify for the EZ application. I would also guess that the vast majority should choose the 24-week period instead of the 8-week to maximize forgiveness. Watch the video below for the walkthrough:
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.
A big concern for me with the Paycheck Protection Program loans was how churches would actually receive forgiveness. Churches accepted these loans without knowing what strings would be attached. The good news is that forgiveness is surprisingly simple!
If you applied for the loan, watch this now because it will give you ideas on maximizing your forgiveness. You will end up with less forgiveness if you:
Reduced your FTE during the crisis without a plan to return back to normal FTE by June 30th.
Reduced an employee’s salary/wages by more than 75% during the crisis without a plan to return it back to normal by June 30th.