Financial Statements – Statement of Receipts & Expenses (Part 2)

Posted on April 16, 2013 Written by

Part 2: Receipts or Revenue or Income

The section listing receipts is always first in the R&E Statement and it is usually one of the smallest.  There are several factors to consider as this section is made:

  • There should be one line for every major revenue stream on which the organization depends. For most churches and non-profits this is one or two (sometimes three) lines such as gifts & offerings, bequests & memorials, and maybe endowment transfers (from your own endowment).
  • Some churches have separate revenue line items for gifts from members versus non-members or gifts from members who pledged versus gifts from non-pledgers. Unless you are using that information for reports and to make decisions there is no reason to separate those gifts. They were given for the operating budget as undesignated gifts so put them all in one line (keep it simple).
  • Small, inconsequential, and occasional revenues should be grouped together into an “Other Receipts” line which may or may not have a budget attached to it. Do NOT create a revenue line for every revenue source – it will make your document unwieldy.
  • Revenues from sources for which there is a direct expense should be in the expense section netted against the actual expense or in a revenue line (actually it is a “negative expense line”) just above the expense line. For instance, many churches have weekly suppers; the receipts from the
  • Transfers to the operating budget from designated funds should not be in the income section. This is not new money but merely a transfer of existing money to offset an expense. To show designated funds transfers as new money is disingenuous.
  • Gifts to designated funds should always go through the appropriate fund on the balance sheet, not through the R&E Statement. To do otherwise will inflate the total amount of operating budget receipts of an organization and make it seem like there are greater revenues from its primary revenue stream than there really is.
  • Budgeting receipts is not simple – you cannot take your annual expected figure for receipts and divide by twelve because every church and non-profit gets a significant bump in December. December is the 13th month because typically twice as much money is received in December as any other month (actually, for most churches the last week of December nets as much revenue as any other month). I created a spreadsheet to help calculate what you should budget for receipts for each month. Here’s how to use that spreadsheet:
    • Go to www.financeforchurches.org and under Free Resources, open the spreadsheet titled Monthly Gifts & Offerings Budget Calculation
    • Insert your church’s name in the title
    • From the Annual Revenue Projections spreadsheet (template is also under Free Resources at www.financeforchurches.org) get the total giving by month for all the years for which you have data. Put that data in column B by the respective month.
    • Delete the respective columns K through Z according to the total number of years for which you have giving data and that automatically changes the figure in  column C (Total # of Sundays). (To delete a column or row – click on the column or row symbol which highlights it, then right click and select “Delete”).
    • Make sure that column E has the correct number of Sundays for the current fiscal year (the formula gets the figure from the list of Sundays to the right on the spreadsheet)
    • In cell I19, type in the annual budget for receipts. The spreadsheet will calculate the monthly receipts figure for your new budget year based on historical giving and number of Sundays in the current year.
    • Take the monthly budget figures and put them into your financial software so that you know what an accurate figure for receipts is for each month, especially December.

When church finances get tight, the initial desire is to cut expenses. Most churches can cut their expenses by 5% without affecting their ministries too much for a year or two. However, the other side of the equation is receipts – most churches should increase their revenues by at least 10% if not 20% based on the financial ability of their members. But asking people to give more is harder than asking a few staff members to cut their budgets. I strongly encourage churches to do both/and: cut expenses AND raise income. It will make your church stronger in the long run.

 

Lead On!

Steve

Filed Under: accounting, budget, church administration, church finances, church financial statements Tagged: , , , ,

Finance Staffing Costs

Posted on June 14, 2012 Written by

Every organization spends money on staff who will do the financial accounting for it. These are skilled individuals with a passion for their organization. Frankly, they’re not working there for the money; these people are talented enough that they could get better-paying positions at for-profit companies. But that’s not where their heart is. They want to make a difference in the world, so they work for churches and non-profits.

My experience and knowledge says that there is a formula that can be applied to determine what an organization should pay for its finance staff. This formula is for the staffing functions only; there are additional costs for materials, computers, training, etc.

Here’s the formula: 3% to no more than 4%

That’s it. That simple.

Here’s what I mean by that. Figure out what your gross receipts are for the past year. By gross receipts, I mean all revenues from all streams that came into the organization for the past fiscal year. Take 3% of that figure and you should be able to staff your finance department with that budget figure.

For instance, if your operating budget plus additional gifts totals $600,000, then should expect to pay about $12,000 for someone to manage the entire financial office: contributions, accounts payable, payroll, general ledger (which includes bank reconciliation), and financial reporting. At the most, you should pay $15,000 (which is 2.5%).

If you are paying substantially more than that, I think you’re paying too much (remember, this is my opinion) unless your finances are incredibly complicated (and if they are that complicated, then you need to find ways to simplify them). Check out your financial operations, see how efficient and effective they are, see if they have the right tools to make them work faster and better, and then decide if you are paying too much because you don’t have the right staff. Then, get the right staff people!

Lead On!
Steve

Filed Under: accounting, budget, church finances, church staff Tagged: , , ,

Budget Percentages

Posted on September 12, 2011 Written by

Below is a recent email exchange with a friend of mine (names omitted).

 
Email Question:
I have a church that wants help examining their budget allocations by categories: missions, personnel, programs, etc. They want to look at similar size churches with similar size budgets. They want to know whether their allocations are in line for their type of church. Basically, they want to benchmark their distributions. They suspect that their personnel budget at 67% is high, but the church doesn’t know any different. And they want to know why they do not have any money to do actual programs.
 
Do you have access to any sort of database like that from any of your connections?
 
My response:
  1. No, I don’t know of any authoritative written source of ratios. Sorry.
  2. My experience tells me the following makes commons sense

 

a.      Personnel
                                                              i.      Range of 40-60% of undesignated receipts
                                                            ii.      Ideally about 50%
                                                          iii.      This includes the ministers and administrative assistants – people key to accomplishing the goals, mission and vision of the church
b.      Facilities
                                                              i.      Range of 15-25% of undesignated receipts
                                                            ii.      Ideally about 20%
                                                          iii.      This includes facilities staff costs
                                                          iv.      The percentage will be higher if a church has debt; lower if there is no or low debt.
                                                            v.      A church should spend annually about 2% of the cost of replacing the building on maintenance. If you have a building worth $1 million, then spend about $20,000 on maintenance. The rest of the percentage will be spent on salaries, utilities, cleaning supplies, commercial property insurance, capital reserve funds, etc.
c.      Programming
                                                              i.      Range of 20-35% of undesignated receipts
                                                            ii.      Ideally about 30%
                                                          iii.      This includes education, worship, missions, funds budgeted for allocation to outside organizations (Cooperative Program/Missions), etc.
That being said, these percentages go wild in various types of churches. New, emerging, highly growing churches have very high salary percentages and loads of debt. Older, established churches have paid off their debt so their programming is high and salaries have stabilized in the 50-60% range. While there is no “one size fits all” there are well-grounded rules that will help a church stay out of fiscal trouble. Hope this helps.
Lead On!
Steve
 
Filed Under: accounting, budget, church finances, church financial statements, leadership, strategy Tagged: , , , , ,

Strategic Budgeting

Posted on September 29, 2009 Written by

It’s that time of the year – church finances committees racing against the clock and sometimes against the staff and members to present to the church a balanced budget. In most cases, the budget looks similar to last year’s budget with a few changes.

There are many ways to create a budget for the next year

  • Last year plus budget – take last year’s numbers and add or subtract a certain amount or percentage in order to get a figure for this year’s budget. This is simple, quick, and easy. That can be good but you’ve got to realize going into the process that you’re taking the easy way out.
  • Zero base budget – this is more complicated and eventually more satisfying. Start with a clean slate for each ministry area (music, education, administration, missions, etc.). Then, plan and put a price tag on every event and activity you’ll do next year. Don’t leave out anything.
  • Strategic budget – this type requires a lot of financial and leadership backbone. Don’t go here unless you’re ready to lead. Like the zero base budget, start with a clean slate. Then, decide what part of your church’s mission is “that which you cannot live without” – what part of your church’s purpose is so integral to your critical path that should you not do that, your church will cease to exist. After deciding what is number one, then determine number two, and number three, etc.
  • Put everything on the table – remove from the equation all positions and people. Think rationally and not emotionally about what it takes to accomplish your church’s mission and vision. Ask questions such as, “Do you need a senior pastor (or can you show videos from a mega church)?,” and, “How many administrative assistants and ministers do you need to carry out each long-term strategic mission goal.”
  • When you have settled on your number one priority, then determine how much money you need to fund the programs and personnel for that mission. Okay, now set money aside from your anticipated next year’s revenues for that goal. Move on to the second goal, determine what it is and fund it appropriately with personnel and programs. Go to number three, four, etc. Do this until you run out of money (most finance committees can tell you how much money the church will recieve next year).
  • There, you’ve created a strategic budget. The nitty-gritty details of how the budget line items will come about are done through the zero-base budgeting process. That is the second step to creating a strategic budget. Zero-base budgets can be done alone but in the long run it will help the church more if they are done in conjunction with a strategic budget.

Here’s the bad news. The financial leadership teams of most churches and the senior pastors are unwilling to develop a full-blown strategic budget. It requires a lot of time and effort. It may require terminating staff and programs that are loved by members. It can be very painful.
Here’s the good news. A strategic budget of this magnitude only needs to be done every 3-5 years. That is about how often corporate America re-structures its management. Business wants to ensure they are going in the rigth direction for their organization and that they have the right staff to make it all happen. For the in-between years’ budgets, you can rely on a zero-base budgeting process.
After all the behind the scenes work is done, church members will see what are the church’s primary goals, how they are funded, how they are staffed and what programs will be done to make them happen. Members can talk about what their church is doing (and not just “being”) and they can buy into the vision, both as volunteers and as donors.
Oh, how many goals should a church have? Probably no more than a handful (3 or 4) and each goal should have no more than handful of programs. Keep it simple, keep it focused.

Lead On!
Steve

Filed Under: accounting, budget, planning, strategy Tagged: , , ,
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