Top 10 Ways to Help the Finance Office (part 3 of 3)

Posted on September 16, 2014 Written by

A colleague asked me how staff and lay members can help the church’s Finance Office. Here is my top ten list; yours may be different – let me know what I left out.

8. Forms are not evil

  • Most forms from the Finance Office are required by a Federal or State agency (IRS, Dept. of Labor, etc.) or by good accounting principles adopted by the Finance Committee.
  • If you don’t know how to read a form, the Finance Office staff can help you since we deal with these forms every day and you probably don’t see them very often. Please ask for help.
  • Turn in your paid time off (sick, vacation, etc.) forms regularly. Do NOT wait till the end of the year or quarter to do that.

9. Learn to read financial statements and read them regularly

  • You need to know what is being spent from your budget.
  • Some expenses are charged to your budget without your prior knowledge such as expenses for the copiers and postage meter – that’s another good reason to read financial statements.
  • Knowing the financial status of your ministry area will help you lead your lay member teams better, too.

10. Consider all payments you make to be open for others to see

  • When you spend church money, always ask yourself “Can I explain this expense to the average church member?”
  • All expenses should be for things that advance the cause and mission of the church. Anything less is poor stewardship.

A concluding note: The Finance Office does make mistakes, but we try to keep these to a minimum. Please help us by reviewing your pay stubs to ensure you’re getting paid correctly, reading your financial statements, and meticulously doing anything and everything related to finances.

 

Lead On!

Steve

Filed Under: budget, church finances, church financial statements, church staff Tagged: , , ,

Top 10 Ways to Help the Finance Office (part 2 of 3)

Posted on September 9, 2014 Written by

A colleague asked me how staff and lay members can help the church’s Finance Office. Here is my top ten list; yours may be different – let me know what I left out.

4. Paying speakers more than $600 in a year requires paperwork

  • If a person is paid $600 or more, the church must get his/her social security number and address so we can send him/her a 1099.
  • Because one person may be used by different departments in a year, anyone who is paid $300 or more in one check must complete a W-9 (which captures a person’s Social Security Number).
  • This is an IRS requirement. Don’t blame the Finance Office for this.

5. Account properly for any money you receive

  • NEVER keep money at your desk/office overnight. Please place it with the Finance Office for safekeeping and get it back the next day.
  • Use the deposit envelopes and fill them out completely.
  • Really, really, really look for ways to accept payments online (for registering for an event or payment for an activity or donations). Online payments are safer and you have a record of who paid what.

6. Fundraising is okay but there are steps

  • All fundraising must be pre-approved by the Finance Committee. NO exceptions.
  • This is to ensure coordination of fundraising, eliminate any timing conflicts, and avoid fundraising for activities not in keeping with our faith principles

7. Budget is a strategic exercise – and that is a good thing

  • ALWAYS be thinking about your budget for the next year in the current year. Ask questions such as what lines have too much or too little money; what lines can be consolidated or even eliminated.
  • Plan next year’s budget NOW (that means anytime during the year). Work with your lay leaders now asking them about their dreams and how they can be implemented.

Lead On!

Steve

 

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

Publicly Available Financial Statements

Posted on August 19, 2014 Written by

Right outside the door to my Finance Office is a multi-tier tray in which I put several documents. This is part of my goal of complete financial transparency. Members (and non-members) can get any of these documents without having to ask for them and without being stopped or being asked why they want the information. Here is what I put in my financial information trays:

  • Latest Month’s Financial Statements

o   I always put out the most recent financial statements. While the church business meeting may only get a financial summary (in order to save paper), the document in this tray by the Finance Office is the same document which the Finance Committee gets. I put it out no later than the 15th of each subsequent month so that people can read current data.

  • Last Year’s Audit or completed financial statements

o   I’ve always had an annual audit, but some churches can’t afford an annual audit. If you have an annual audit, please put out copies of the complete audit so that people can read what an independent CPA wrote about the church’s finances. If you don’t have an annual audit, then put out the prior years’ complete financial statement (the document which has the information for all 12 months). People can look back at the prior year and compare it to the current year if they choose.

  • Other info: I also want to look forward, not just backward at financial information. To that end, I put out information which will help members be better Christians and give them ideas for being generous with their church.

o   Stewardship books: I make available two books which are free for the taking. The books are Fields of Gold by Andy Stanley and The Treasure Principle by Randy Alcorn. These books are inexpensive, but they are powerful. I keep the rack stocked with these books and encourage people to take as many as they want.

o   Capital needs list: Every church has long-term, financially expensive needs. However, most churches do not have a way to let members know what needs to be done. I strongly encourage churches to post a list of their capital needs – ranging from relatively inexpensive items (chairs for the children’s area) to major items (new roof or A/C units). Keep your membership informed because at some point, the church will have to pay for these expenses and perhaps someone will see this list and take care of it before the church has to pay for it.

o   Other Items: You can use this to publish information about a current capital campaign, a long-term mission project, or other things that the church needs to be aware of.

Use this multi-tier tray to keep your members informed. It’s money they gave to their church, and providing transparency engenders your donors’ trust.

Lead On!

Steve

 

Filed Under: budget, church finances, church financial statements, leadership Tagged: , , ,

Intentional

Posted on June 17, 2014 Written by

Stop doing things “because we’ve always done it that way.” Instead, be intentional – about everything. Have a good, solid reason as to why a church does everything. I’ve worked with too many churches who are just repeating what they’ve done in previous years and are getting the same results but they are fearful of changing the status quo lest they upset members. Frankly, staff members aren’t worried about upsetting a member, they’re worried about losing their jobs.

Even Jesus had serious problems with what had become tradition instead of faith and he got in trouble when he questioned why the Jewish leaders kept up practices that were outdated. Their answer was the same that churches use today, “because we’ve always done it that way.”

Ask questions of people—lots of questions—about why things are done. I’ve gotten dirty looks from people when I dared question why a church would spend over $100,000 on a library without ever asking if this library was in the church’s strategic plan. I didn’t get fired. “Attack the problem, not the person” is one of my favorite sayings.

Be intentional with the right motives: to make the church the most effective it can be. Analyze everything a church does. Ask about mission trips and their results. Determine if committees need to be dissolved or reconstituted. Don’t try to tweak and re-tweak programs – shut them down, assess their goals, and start new – that will get better results than continuing the same thing. Don’t be hamstrung by policies and bylaws which were created by previous generations but which aren’t relevant today. Ask why some positions and people rotate leadership roles and why new blood isn’t brought in. Ask why we use the same vendor instead of putting it out to bid. Ask what the financial numbers mean without any financial obfuscation.

The only thing sacred in a church is the text we all use – all the trappings of churches today are human creations and can thus be changed. That includes how we worship, study the Bible, establish church governance, etc. Don’t just let things happen – be intentional about everything in the church. Change may involve killing some of these sacred cows and that must be done carefully and intentionally. But ultimately the church will know there is a very good reason behind everything it does – to be the church God wants it to be.

 

Lead On!

Steve

Filed Under: budget, strategy, wisdom, young adults Tagged: , , ,

Church Budgets: Top 10 List (part 2 of 2)

Posted on February 25, 2014 Written by

[See last week’s post for part 1.]

6. What are the percentages that should be used as a rule of thumb?

A church spends money on three things and the rule of thumb is that you should spend the following ranges on each of these areas:

  • Staffing: 40-60%, ideally about 50%
  • Programming: 20-35%, ideally about 30%
  • Buildings: 15-25%, ideally about 20%

Percent of WHAT? There are two ways to measure this

Operating Budget – the budget is an easy and pre-defined way to measure. These percentages can be seen even before the first dollar has been given to the budget for that year.

All Actual Receipts – a better way is retrospective by looking at the prior year’s expenses on all areas and all receipts. This is more complicated but it gives a better result.

  • Look at ALL RECEIPTS not just operating budget (all monies received for all causes and purposes): operating budget; mission offerings; events, trips, and activities; food service; designated gifts; etc. Count everything that comes in.
  • Look at ALL EXPENSES for each area. There are many expenses paid from designated funds which are not part of the operating budget. Count all those expenses.
  • Do the math to get the most accurate percentage of where the church is spend all of its money. Most churches will end up spending far less on staffing and building than what is in the operating budget and a lot more on programming.

 

7. What about capital budgets?

  • Capital budgets are monies that are used for major building expenses such as new heating and air conditioning equipment or gutting and overhauling rooms.
  • Capital expenses often don’t fit into the operating budget and thus are paid from capital campaigns, the generosity of some members, creative finances, funds leftover at the end of a fiscal year, or a combination of some or all of the above.
  • Most churches cannot afford to put a line their operating budget for capital expenses – their current operating budget is too tight. However, all churches must face the reality of capital needs and thus must have a plan for how to handle these expenses.
  • All churches should have a list of capital needs facing the church over the next ten (10) years. That gives the church’s leadership an idea of how it needs to plan financially to face the certainty of aging equipment, leaky roofs, inefficient heating units, etc.

 

8. Can you use designated funds in the budget development process?

Yes and you should. Some people prefer to give to specific purposes and not to the operating budget (a better term is “Ministry Budget” or “Mission Budget”). It impossible to pre-determine how much will be given to designated funds but you can have an educated figure.

Designated funds are secondary, not primary sources of the budget for that purpose. Plan your operating budget first and then plan the “what-if opportunities” for monies given to the designated fund.

 

9. To whom is the budget presented?

  • The more the better. Tell as many people as possible about the budget. The more people that know and understand the goals of the budget, the more “buy in” you’ll have when it comes to funding the budget.
  • Use different times and places. Be creative in how, where, and when the budget information sessions are held. Different groups meet at different times, so leverage those meetings. Use different people to do the talking, too – it shouldn’t ever be the same person doing all the speaking.
  • TELL STORIES – budgets are never about numbers. Budgets are ALWAYS about people. So, when you make the presentations, tell the stories (beginning, middle and end) about how people will be changed and helped because of the money given to the church.

 

10. How do you anticipate and prepare for the questions will you get?

You can’t. But you can be prepared by knowing as much about the budget, its process, and its leaders as possible. Don’t spend time trying to anticipate questions; spend time with people (especially young leaders) so they’ll understand the goals of the church and how the budget plans to work toward those goals.

When you have Q&A times with the church, don’t let just one person handle all the questions. Ask all committee leaders (missions, worship, youth, education, etc.), all Finance Committee members, all staff ministers, and other key leaders to come to the platform.

  • The church will then get to see who made the decisions regarding the budget. Usually, those are a score or more of trusted leaders, not just one committee working in isolation.
  • The people on the platform can best answer detailed questions about their respective area. The Budget Committee leader may not know why the guest musician budget line has that figure, but someone else does.
Filed Under: budget, church finances, church financial statements Tagged: , ,

Church Budgets: Top 10 List (part 1 of 2)

Posted on February 18, 2014 Written by

This week I am posting #1-#5 of the Top 10 considerations regarding church budgets. Stay tuned for the remainder of the list next week.

 

1. Why do you need a budget?

A budget is a tool – nothing more.

  • It is a yardstick to measure your progress toward planned goals.
  • The planned goals are the most important aspect of the budget, not the financial numbers.
  • The financial numbers are ONE indicator of how well the church is doing toward achieving these goals, but it is not the ONLY measurement.

Budgets must be developed holistically

What do we want to accomplish in our youth ministry, worship area, building maintenance, staffing needs, etc.?

How are we going to reach these goals using our resources?

  • People: staff, volunteers, and paid vendors
  • Money: from all sources, not just budget
  • Time: when do we plan to achieve these goals

Ideally, budgets look forward over several years, not just the next few months. The Budget Committee should always be looking at how the church’s finances need to be structured over the next several years.

 

2. What is the timeline for developing a church budget?

There are several elements to the process and each one has its own timeline. Some churches use all these elements and some use only a few. Determine what works best in your specific church’s culture.

Theme development

  • Churches that use a theme typically have a team working on this 7-8 months before the beginning of the new fiscal year.
  • Some churches have themes centered on the core aspects of church (worship, fellowship, missions, member care, and education) and promote each one every five years. This helps guide theme development.
  • The committee usually selects a verse, logo, tag line, and music which will help focus the church during the budget emphasis. Churches with a fiscal calendar year often use October as the budget emphasis time, and theme development is in April and May.

Committee budget work

  • Committees need 2-3 months to find times to meet and come up with goals (numeric and intangible) for their ministry areas for the few years.
  • Committees should have a leader (staff or lay member) who can make a presentation, if necessary, to the Budget Team.
  • Committee work is done 4-6 months before the new fiscal year.

Budget Committee coordination

  • It is up to the Budget Committee (sometimes a subset of the Finance Committee) to gather the info from the various working committees and compile it into a comprehensive budget.
  • Some Budget Committees want representatives from the various teams to make presentations to the Budget Committee so that they’ll more fully understand the why behind each of the numbers. These presentations can help this Budget Committee to be the most fully informed group of lay leaders about the wide variety of work being done by the church.
  • Budget Committee work is done 3-4 months before the new fiscal year.

Church-wide presentations and vote

  • Some churches have a month-long budget or stewardship emphasis to help people understand what makes up all these figures and why each person in the church is important to make all of it happen. Many churches will use every form of communication possible to inform members and get them involved.
  • If the church is on the fiscal calendar year, then these presentations are in October with a vote by mid-November (before Thanksgiving) so as not  to encroach on Advent.
  • Typically, this work is done 2-3 months before the new fiscal year.

Follow up

This is a continuous process during the fiscal year. People need to be reminded of how their money is being used and the good that it is doing. Take advantage of Sunday morning offering times to tell the stories of how lives are being changed due to the generosity of church donors.

 

3. Who needs to be involved in the process?

Early stages

  • In the early development of a budget, you need the informed leadership working on the budget. This usually means the informed leadership in each budget area meets to plan their goals and determine the resources they need to achieve those plans.
  • The Budget Committee (or designated sub-committee of the Finance Committee) does not have jurisdiction over the goals in the various ministry areas because they are not as fully informed about those areas as the respective committees are.

Middle stages

  • At some point in the development process, the many ministry committees should invite feedback from the people invested in each area.
  • For example, the Missions Committee should tell people interested in missions what the plans are and then ask them for their ideas about what is needed on future endeavors. Committees must never create budgets in a vacuum – seek input first from the leadership and then from the followship. The “wisdom of the crowds” is valid and insightful.

Later stages

Finally, the different components of the budget will become public and that is when as many people as possible should be aware of the budget (at a minimum) and invested in it. The more people that are “buying into” the budget and what it wants to do, the more successful all the areas of the budget will be.

 

4. Should you use pledge cards?

Some churches have used pledge cards for decades and will continue to use them. Some churches stopped using them; some of those members regret that decision and others do not.

Pledge cards have several purposes:

  • As a tool in setting the budget
  • As a way to challenge people to give more
  • To track how much people have given

Increasingly, younger generations do not want to commit to a figure they’ll give. They will give – and give generously – but they just don’t want to state how much they’ll give. There are so many variables in life (debts for school, home, car, credit card; kids; trips; business and home; etc.) that are hard to plan for.

If you use pledge cards, then have a clear, concise, consistent reason WHY you are using them.

  • Pledge cards should never be used as a tool to bully people into committing or giving – too often that is what pledge cards devolve to.
  • Like ALL aspects of church finances, pledge cards must be used in a positive way, such as encouraging people to be more generous (with their prayers, their time given to church activities, and their finances).

 

5. How do you estimate your annual income?

This is one of the hardest numbers to determine in financial budgeting.

Fiscal prudence suggests one or a combination of the following. A church should be able to do better in the future than it has in the past.

  • Use the past 12 months’ rolling figure of actual receipts
  • Use 90% of the past 12 months’ rolling figure of actual receipts
  • Use a spreadsheet formula to forecast the next 12 months’ income

These formulas are intentionally conservative. The church can use any “excess” for capital needs, additional staffing or programming needs, and/or to establish and replenish reserves.
Be financially conservative in your projections. You won’t regret it.

 

Filed Under: budget, church administration, church finances, church financial statements, leadership, wisdom Tagged: , , , , ,

IRS Forms 8941 and 990-T

Posted on October 8, 2013 Written by

Under the 2010 Obamacare law, the US Government is giving money to small businesses, including churches. Form 8941 and Form 990–T enable small employers to get money based on the number of FTEs (full-time equivalent employees) if that number is less than 25, if the church paid employer health insurance, and if the average salary of the FTEs is less than $50,000. Below are the three conditions for filing (straight from the IRS):

1. You paid premiums for employee health insurance coverage under a qualifying arrangement. A qualifying arrangement is generally an arrangement that requires you to pay a uniform percentage (not less than 50%) of the premium cost for each enrolled employee’s health insurance coverage (defined later). However, an arrangement that requires you to pay a uniform premium for each enrolled employee (composite billing) and offers different tiers of coverage (for example, self-only, self plus one, and family coverage) can be a qualifying arrangement even if it requires you to pay a uniform percentage that is less than 50% of the premium cost for employees not enrolled in self-only coverage. In addition, an arrangement that requires you to pay a separate premium for each employee based on age or other factors (list billing) can be a qualifying arrangement even if it requires you to pay a uniform percentage that is less than 50% of the premium cost for some employees.

2. You had fewer than 25 full-time equivalent employees (FTEs) for the tax year. You may be able to meet this requirement even if you had 25 or more employees. For details, see Individuals Considered Employees and Full-Time Equivalent Employee (FTE) Limitation, later.

3. You paid average annual wages for the tax year of less than $50,000 per FTE.

I submitted the forms for a couple of clients who each got back over $6,000 for each year filed, and there are 3 years which can be applied for (2010, 2011, and 2012). The money came in about 2-3 months in a check from Uncle Sam; no one from Washington made any inquiries or calls about this.

“If it sounds too good to be true, thus it must not be.” Not in this case. One of my clients has close connections to Rep. Eric Cantor’s office. A church member contacted a staffer in Cantor’s office and the staffer said this is all legit and furthermore, the government would not use this as a way to “get into the business” of non-profits and churches.

Uncle Sam is giving away money – get it or lose it. If you need more info, please contact your auditor or email me and I’ll help.

Lead On!

Steve

Filed Under: budget, church staff Tagged: ,

Fiscal Year

Posted on October 1, 2013 Written by

What should be a church’s fiscal year: The calendar year or some other 12-month time period? There isn’t a right or wrong answer; just find an answer that works best in your context. Second, there are pros and cons to having a calendar-year or non-calendar-year fiscal year. For instance, churches receive as much as 5% of their annual receipts in the last 10 days of the year, and it is impossible to spend that money before December 31. That leads to the question: should a church’s fiscal year end on 12/31 when it can’t use all the funds given to it, or should it use a different fiscal year?

Some denominations, such as the Nazarenes, require a different fiscal year; all Nazarene churches have a fiscal year which ends on April 30. Southern Baptist churches historically start on October 1 and end on September 30, but it is not mandated. Below is a list which was initiated by Brandon Woodard, a colleague and friend of mine.

Reasons not to use a calendar year as a fiscal year

  • Church won’t have to rely on December’s offering to meet their annual budget receipts or not
  • Allows the church to spend the December gifts in the subsequent calendar year because it is part of the December fiscal year
  • Spreads out the workload of calendar year-end closing of inputting a new budget; sending out donor gift statements, W-2s, W-3, 1099s, 1096; updating payroll increases, benefit premium changes; opening and closing fiscal years on the General Ledger; and all other year end closing procedures in a 30 day period (December 15-January 15)

Reasons to use a calendar year as a fiscal year

  • Most church members presume their church is on a calendar year
  • Many churches will receive more money in the last few days of the year than they can spend and these “unspent budget funds” can be set aside in the next fiscal year and used to fund reserves, pay for capital needs, knock down debt, or any number of other things that the church didn’t budget or plan for
  • It provides the opportunity to encourage people to be generous at Christmas and to help the church out even more

Personally, I prefer a calendar year as the fiscal year. It requires the church to be fiscally prudent throughout the year and then it can provide some monies for major needs. Also, many if not most businesses (including the IRS) use a calendar year, so society has trained people to use it.

Lead On!

Steve

 

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