How to Calculate a Church Budget

Posted on January 8, 2013 Written by

Every church I’ve worked with has struggled with determining the amount at which to set the subsequent year’s budget. Everyone wants to increase the budget in order to provide more funds for staffing and programming (rarely for building needs, but that is another matter). But Finance Committees know that even if they put a figure out there, it means little if the income/receipts/revenues don’t come in to support that budget target. Committees want to step out in faith, but they also don’t want to be caught overstepping (and dropping into a financial void). So, what’s a church Finance Committee to do?

Here’s my idea:

  • In the month that you set the budget for the next year, look back 12 months and calculate how much money came in during that period. That figure is your budget for the next year.
  • For instance:
    • Your fiscal year is the calendar year
    • In July and August, ministry areas work on their respective budgets with a deadline to get their requests to the Finance Committee by August 31
    • The Finance Committee gathers all the data to finalize the budget by September 30 so that it can be voted on in October
    • At their July meeting, the Finance Committee looks at the total undesignated receipts for July 1 through June 30 (the previous 12 months). That figure is the new budget for the fiscal year that starts in January (six months away).
    • Whatever that increase (or decrease) is over the current fiscal year, that percentage (up or down) is communicated to all the ministry areas as to how much they can increase (or decrease their budget.

This has many benefits:

  • This is a conservative or fiscally prudent way of budgeting – churches should receive at least that amount in the next 12 months, perhaps a good deal more.
  • This means that you shouldn’t have to go into spending freezes and hurt the morale of the staff and church
  • This enables the church to continue to plan well for its ministries and not feel it is over-reaching financially
  • If more money comes in than was budgeted, the extra money can be used for capital needs, rainy-day or reserve fund(s), money for unforeseen opportunities, additional money for budgets that were shorted, etc.

This process makes short work out of deciding how much you’ll budget for the next year. That will enable the Finance Committee to focus on more important things such as assisting ministers, ministries, and members with good stewardship practices.

Lead On!
Steve

Filed Under: budget, church administration, church finances Tagged: , ,

Saying Thanks!

Posted on January 5, 2013 Written by

Here is a link to a good article about thanking your donors. Thanking, explaining, sharing stories, and helping others know what is going on in your church is vital to your church’s finances. People liked to be thanked – please do it often and use as many platforms as you possibly can:

  • Personal letters
  • Articles in the church bulletin
  • Social media
  • Webpage
  • Hallway conversations

If you make this part of your daily attitude, that same attitude of gratitude will flow into your staff and your church members. After all, it is well known that every organization takes on the attitude of the top dog. So, be grateful, tell others thanks, and encourage everyone to follow your lead.

http://www.guidestar.org/rxa/news/articles/2012/9-clever-ways-to-thank-donors.aspx

1. Write a Greeting Card, Not a Business Letter
2. Share Recent Progress, However Small
3. Add an Invitation—But Not to Something That Requires Another Donation!
4. Use a More Creative, Personal Opening
5. Include Results-Oriented Photography
6. Record a Video Message
7. Send a Postcard from Behind the Scenes
8. Be Specific about How the Gift Is Being Used
9. Change Who’s Saying Thank You   Lead On! Steve

Filed Under: church administration, communications, leadership Tagged: , ,

Overhead Costs?

Posted on January 1, 2013 Written by

What is the overhead cost for a church and what percent of the budget should it be? That’s not easy to answer – there are lots of variables. Take a look at this article to see what this research shows.

http://www.greymatterresearch.com/index_files/Nonprofit_Overhead.htm

Why is this important? Because you should know what are your fixed costs and your variable expenses (although, at some point, ALL costs are variable if the church closes it doors).

Overhead costs are expenses which can be made more efficient in many cases. Take a look at what you’re spending your money on and see how you can save some money. Your only regret will be in not having done it sooner.

 

Lead On!

Steve

 

Filed Under: budget, church administration, church finances Tagged: , ,

Church Credit Cards

Posted on December 24, 2012 Written by

I think church-issued credit cards are unnecessary except in special situations (more on that later). I really am against the issuing of church credit cards and here’s why:

  • they lead to more work by a staff person, usually an administrative assistant to manage all the cards and track the receipts
  • they lead to expense since some staff will buy things more quickly than if they were using their own card
  • they lead to abuse by some staff (dealing with that is a personnel committee matter not a finance committee issue)
  • they are seen as a right and status symbol when they are neither

Here are my recommendations regarding church credit cards:

  • Staff should use their own personal credit cards when making purchases for the church. Then, the staff person should turn in a receipt and get reimbursed for that expense just like he or she would for mileage or any other purchase. This incentivizes the staff person to get the receipt and turn in the receipt in a timely manner. This addresses the single biggest issue regarding church credit cards – staff members who do not turn in receipts when asked for them and that causes problems for the church’s Finance Office.
    • A way for staff to deal with this in a positive manner for them is to get a card with rewards points and then use that card only for church purchases. Write on the card “church use only” so you don’t get confused. When the bill comes in, turn in the statement and all the receipts requesting that the check be made payable to the credit card company (not to the staff person). At the end of the year, the staff person earns points which he or she can keep.
  • A church may want to have ONLY ONE church card in the office and that is for use by the administrative assistant when he or she is buying things online (from Amazon.com or an airline ticket or paying a conference fee). This card should not be used by one of the ministers – they can use their own card – and the invoice must immediately be sent to the church’s Finance Office as soon as it is received by email.

There is one and only one exception that I can think of and it is not very good. If a staff person needs a credit card for church work but cannot get one because his or her own credit is poor, then the church can intervene and get one. But, there is a big, huge red flag – if that person’s credit is that poor, there is a reason for that and do you really want someone with bad credit handling a church credit card? Think twice about that.

I know church credit cards can be positive. In the past two years I’ve gotten three (3) iPads for church staff using rewards points. But I also know that when you get credit cards, someone on staff will spend hours reconciling all the receipts to the card statements and entering the payment data. That is a lot of extra time that could be used more productively elsewhere in the church.

So, if you ignore my advice and do get church credit cards, you need to have a contract with the cardholders. This contract needs to be authorized and approved by the church’s Finance Committee, signed by the staff person, and placed in the employee’s personnel file in the Finance Office. This contract should have a “three strikes” provision: if someone with a church-issued card does not turn in his or her paperwork in a timely fashion (when requested by the Finance Office), then after the third event the card will be revoked for a specific time period (usually 3 or 6 months, sometimes indefinitely until the person appears before the Finance Committee or even the Personnel Committee).

The bottom line for me is about being good stewards of the church’s resources. A credit card is a privilege, not a right and staff people need to earn it, not expect it.

Lead On!
Steve

Filed Under: church administration, church finances Tagged: ,

Financial Records Retention for Churches

Posted on October 26, 2012 Written by

Records retention of financial data can get very complicated very quickly but I think it should be simple. I’ve studied different charts but it all can be divided into two categories: 7 years and permanent.

7 Years

  • Bank statements & reconciliations
  • Contribution records
  • Accounts payable records
  • Payroll detail
  • And other financial detail records
 Permanently
  • Commercial insurance records and payments (property and workers’ comp)
  • W-2s, W-3s, 1099s, and 1096s
  • General Ledger detail
  • Monthly financial statements
  • And other big picture records
The short-term docs are kept mostly in case of a church or staff member being audited by the IRS; IRS audits can go back only 7 years maximum. Also, after 7 years, most financial info is considered “historical” and not relevant to the church’s current status.

 

The reason for keeping insurance docs forever is for legal purposes: if something comes up years later (child molestation or a building issue), you want to get the insurance company at the time of the incident to pay for and handle all the legal issues You need to keep a copy of the policy and payment of the bill to prove it was in effect. Other long-term docs are kept for legal and financial history; they are rarely consulted but it is a good way to keep financial history. There is no legal or financial reason to keep records of individual gifts beyond 7 years.
BTW, there is no permanent or long-term accepted standard for record-keeping. Right now the best way is on paper with an electronic backup in PDF format. Everyone is waiting on the Library of Congress to determine the definitive long-term storage but LoC is waiting on technology (which changes constantly). Until then, print things out (old-school) and have an electronic version (new school).
These docs need to be stored
  • In a climate controlled environment such as a closet
  • Above floor level  so that rising water won’t damage them
  • Behind a secure door which is keyed differently than all other building keys
  • In boxes on shelves to make access in subsequent years easier
  • Together by fiscal year and all permanent records need to be stored together
  • And, the financial records storage closet can also be used to store items that just don’t fit in the finance office.

Each year, the oldest docs need to be shredded. I took the annual shredding chore and made it into an opportunity to help church members. I announced, especially to the senior adults, the day that shredding would happen and encouraged them to bring in old docs such as tax records and bank statements. The seniors were very grateful that the shredding could be done at no cost to them and it didn’t cost the church any extra either.

Shredding will cost less than $100 or you can see if your bank will shred your docs for you. Some businesses have “shredding parties” to draw new customers – take advantage of that even if you don’t become one of their customers.

Lead On!

Steve

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

What Hasn’t Changed?

Posted on August 20, 2012 Written by

My missionary/pastor father was born in 1928. I distinctly remember going on vacations where he wore a coat and tie every day – of vacation! That’s who he was and the generation of which he was a part. He went to church every time the doors were open, even when he wasn’t the pastor of the church.

It’s been 32 years since he died. And times have changed – dramatically. My children don’t go to church in “Sunday go to meeting” clothes. They wear what they wear to school – shorts, flip-flops, shirts (we usually do require a solid color shirt, not a logo shirt).

What else has changed in church from 30, 40, or 50 years ago? Actually, EVERYTHING!

  • The music we sing to
  • The instrumentalists
  • The “hymnals”
  • The pews
  • What people wear
  • The Bibles people bring (mine is on my iPhone)
  • How people learn (in the middle of a Bible study, someone will pull up a doc from the internet)
  • The “Sunday School quarterlies”
  • Mission trips
  • How we do missions
  • How members support their church financially (electronic offerings are increasingly the norm)
  • etc., etc.

I can’t think of a single area of church-life which has remained stagnant in the past 30 years (except maybe the sermon!).

Okay, now think 30 years from now to the year 2042. If you think we’ve had a lot of change in the past 30 years, it’s going to be increasingly exponential change in the next 30. That leads me to ask:

Are you being intentional in preparing your church for upcoming changes? OR Are you just going to let the changes happen to you?

Change will happen – you can’t stop time, don’t even try. But you can get ready for change. I’m not saying you have to embrace every change that comes along, but you don’t have to fight every change either. Pick and choose your battles (the best piece of advice my mom ever gave me!) – learn what changes your church should adopt and adapt to. If you resist change, your church might end up with closed doors. Your church will be stronger in the long run by developing a healthy attitude to change.

Lead On!
Steve

Filed Under: church administration, leadership, wisdom Tagged: , ,

How Much Debt Should a Church Have?

Posted on July 17, 2012 Written by

Personally, I think church debt should be exactly like your homeowner’s debt: that ratio should never exceed 2 to 1. Yes, a bank will loan you 3 to 1 but you’ll be so strapped financially that you won’t have any disposable cash for doing anything else.

The ratio to the operating budget, my suggestion is 10% or less. Basic economics for a church with no debt:

  • building is about 20%
  • programming (including missions) is about 30%
  • staffing is about 50%

To pay your loan, you’ve got to take it out of one or all three of these. Most of your building costs are fixed (energy and maintenance). That leaves programming and staffing – if you cut those too much, you’ll have a great building with no one to lead and no one to follow.

 

Better to have programming at 25% and staffing at 45% with some growth than to cut to the bone at 20% programming and 40% staffing (which will kill your staff, too). You can grow out of debt, but that takes a lot of intentionality – that is hard when most pastors are trying to manage what they already have and can’t imagine taking on more in order to grow giving and attendance even more than they are already doing.
I’ve worked with some churches that have a 3 to 1 ratio (debt to annual budget), but they are hurting financially. And, their new building will be old and worn down long before the debt is paid off at their current rate. The appearance won’t attract new people, especially a younger generation.

My recommendation, get out of debt as soon as feasibly and fiscally possible. Debt is fine so long as it doesn’t become the boa constrictor that wraps around the church and kills it.

Lead On!
Steve

Filed Under: budget, church administration, church finances Tagged: , ,

Who is the Church’s Risk Management Officer?

Posted on May 3, 2012 Written by

Every organization has a risk management officer – someone who is formally or informally charged with ensuring the safety and security of the church and its property, with knowing the church’s personnel and financial policies and insurance limits, and working to reduce its legal liability to almost nothing. Unfortunately, many churches, if not most or perhaps even 99.999%, do not recognize the need to assign this responsibility to someone.

From a legal standpoint, the courts have assigned this responsibilty to someone, the senior pastor. Whether or not the senior pastor realizes this is another matter. If the senior pastor does not want this position, then the senior pastor must formally assign this to someone, whether it is a staff person or a lay person. However, the senior pastor must verify that this job responsibility is being carried out regularly.

Here are some things to check on:

  • Safety issues related to the phyiscal building and grounds regarding things such as tripping hazards, sharp edges, or other things that can harm people
  • Safety items related to the people including background checks on people working with minors, protecting people from known predators who prey on adults and children, removing (by force if necessary) people who come to the church in a threatening manner
  • Building security to make that unauthorized access or use of the building is not happening so that people don’t hide in a building after it is closed to do something illegal or that they can’t get locked inside a room
  • Emergency safety including evacuations and hunkering down depending on the type of emergency such as fire, bomb threats, severe weather, armed intruders, kidnapping, etc.
  • Personnel law to ensure that the church is complying with all laws pertaining to its personnel management to prevent legal action from current or former staff
  • Medical emergencies which require the intervention of trained professionals and what by-standers should do in such a situation
  • Financial policies to make sure that proper laws are being followed so that the church is not exposed to the mismanagement of funds including embezzlement and lawsuits or threats related fiscal management
  • Vehicle inspections and safety so that all church buses and other vehicles are safe, road-worthy, outfitted with good tires, and that brakes, seat-belts and other safety devices are in good working order.
  • Police interaction to keep a good relationship with local law enforcement so that when there is an emergency the police will take a personal, not just professional, interest in the situation and the location.

As I said, the courts have already assigned this responsibility to the senior pastor but most pastors have no idea of this legal burden. Pastors would be very, very wise to sit down with the church’s personnel, finance, legal, and other wise counsel to draft a plan so that all aspects of risk management are covered. This will protect the organization and actually help the organziation be proactive in the instance of an event.

Lead On!
Steve

Filed Under: buildings, church administration, facilities Tagged: , ,
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