10 Financial Ratios (part 8 of 10)


Receipts & Expenses: Ratio of Actual to Budget

  1. Definition: Divide actual receipts and expenses to the budgeted figure
  2. Results:
    1. Annual receipts should be between 95%-100% of the budget goal
    2. 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.
    3. 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%.
  3. Consequences:
    1. 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.
    2. 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.
    3. The difference between receipts and expenses:
      1. This should be a positive cash flow which is added to the cash reserves at the end of the year.
      2. 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!