Receipts & Expenses: Ratio of Actual to Budget
- Definition: Divide actual receipts and expenses to the budgeted figure
- Results:
- Annual receipts should be between 95%-100% of the budget goal
- Annual expenses must never exceed the annual receipts figure (unless there was a significant event in the history of the church – departure of pastor, major local employer shutting down, etc.). Based on the figure above, expenses should be 90%-95% of the budget.
- Annual expenses should be less than the annual receipts in order to have a positive cash flow at the end of the year. There should be a difference of 2%-5%.
- Consequences:
- Receipts: if your receipts fall outside the 95%-100% of the budget (and there hasn’t been a significant event in the church), then you may not be budgeting properly.
- Expenses: these can exceed revenues for one or perhaps two consecutive years but any more than that is a sign of poor budgeting or lack of control over expenses. Both are unhealthy.
- The difference between receipts and expenses:
- This should be a positive cash flow which is added to the cash reserves at the end of the year.
- These reserves can be used for capital investment needs in the church.
Now What? So What?
- Compare your church’s financial ratios to the optimum range for each ratio.
- Develop a 2-3 year plan to bring your ratios in line with best financial practices.
Lead On!