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: , , , , ,

Olive Trees

Posted on December 10, 2013 Written by

Olive trees are rather amazing. I’ve never worked in an olive grove, but I did grow up in Spain, which has about 40 million olive trees. I couldn’t help but learn about olive trees as I drove across the country and saw olive trees from one horizon to the other.

There is a saying that when a farmer plants an olive seedling, he is planting it for his children. Olive trees mature slowly; an olive tree is 25 years old before it bears fruit. Not many farmers today can wait 25 years for a crop to come in.

But the olive tree is also amazing for its longevity. An olive tree will live about 1, 000 years, and some are even 2, 000 years old. So once an olive tree is 25 years old and begins to produce olives, it will continue to do so for the next 1,000 years if it is cared for properly.

Olives are harvested in a rather harsh fashion. Cloths are spread out under the tree and the branches are beaten with long poles. A hail of olives falls on the cloths. The cloths are gathered, and the olives are poured into buckets. These olives are used for food, pressed to make olive oil, or planted for another generation’s benefit. The olive tree doesn’t grow tall; it is smallish. Its trunk is not straight, so its wood is not good for construction. The olive tree is a humble tree that in maturity gives results for centuries to come.

It may be a stretch, but I’d like to compare church buildings to the olive tree. Typically they are not grandiose architectural masterpieces but are functional. They take many years to plan and build, but they will be with us for generations to come. Every generation or so, churches add a structure—knowing the primary beneficiaries will be their children and grandchildren. And, at some point in the unknown future, a decision will be made to tear down the building that the current generation labored so hard to construct.

Church buildings should be seen as investments:

  • First is the money that is raised to pay for the land and the building itself. It usually takes years to raise the money and pay off the principal and interest on the construction debt. If the generation doesn’t pay off the debt, then we saddle the next generation with debt plus the expense of maintaining the facility.
  • The second and greatest investment we make in our new building is people, especially our children. The building is a tool, not the goal; the measuring stick is how many lives the building affects for the Kingdom. We must ensure that the classrooms have the best teachers and leaders and they have all the training and resources they need to do the volunteer job they’ve been asked to do. The result will be people who leave the structures each day to go into the world knowing and sharing the love of God with each and every person they meet.

As we invest our money and our lives in church buildings, only God knows the fruit it will bear over the next several generations, because we planted a seed.

Lead On!

Steve

Filed Under: church administration, church finances, future, strategy Tagged: , , ,

Urgent vs. Important

Posted on September 3, 2013 Written by

There’s already been a lot written about “urgent versus important” as a management tool. I’m sure I’ll repeat some things, but they bear repeating. Some consultants advise using a JoHari Window to help manage the important and urgent.

Important

Not Important

Urgent

Not Urgent

 

  1. Immediately deal with important and urgent items.
    1. These are items that cannot wait and if not dealt with efficiently and effectively, there could be a significant downside impact.
    2. Often these will require using substantial amounts of resources so that the outcome is the best possible for everyone.
    3. Next, deal with urgent things quickly but do not invest lots of resources in them.
      1. They are wildfires that need to be put out. Don’t let them get out of control or there could be unfortunately consequences.
      2. Urgent things consume resources – time, money, and energy – and are often not productive.
      3. Third, focus on the important things.
        1. That’s where you need to invest your resources.
        2. Taking time to set expectations and standards will, in due course, mean that people will know what is important to you. They will realize that urgent things are usually insignificant and that you want to spend time on important stuff.
        3. Lastly, things that are not important and not urgent shouldn’t be dealt with at all. Not even by subordinates. They are a waste of time.

By the way, if you’ve not used JoHari Windows, I strongly encourage their use. You can put almost anything on the sides and once you fill in the squares, you’ll quickly see where you need to focus your resources. The Johari Window was created by two guys (Joseph and Harrington) in the 1950s as a tool to help interpersonal relationships, but management consultants saw where this can be used in a variety of business scenarios.

Lead On!

Steve

 

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

Decision-making Questions

Posted on August 20, 2013 Written by

Gray areas are dangerous territory. When something is not clear cut and no easy decision can be made, it is a gray area. To help navigate those gray areas, ask yourself several questions:

  • What is the upside versus the downside of doing or not doing this action?
  • What is the wise thing to do?
  • What would a prudent person do?

These questions will make you pause long enough to help you make the right decision. Sometimes you only need to ask one of these but sometimes you should ask all three . You can figure out when to ask which ones.

What is the upside versus the downside of doing or not doing this action?

By definition, decisions mean choosing one thing over another. That means you give up something in favor of something else, and you want to choose correctly. This question asks if the benefits of this decision outweigh any negative consequences. Sometimes a decision made with good intentions can have unintended divisive results and you need to determine ahead of time if that good decision is worth it.  Make sure the downside never overshadows the upside; if there is a chance it will, don’t do it.

What is the wise thing to do?

Andy Stanley wrote a book The Best Question Ever in which he posed this question as THE basis for all life-decisions. I agree – asking yourself “is this the wise thing to do” will always make you stop and ponder the consequences of your upcoming actions. Wisdom is a life skill that increases with age and experience. Even if you are a teenager, asking this question can simply slow you down before committing to something so that you can make that decision in a well-thought-out manner.

What would a prudent person do?

Ask this question especially when there is a legal issue at heart. Let me be more explicit: can you stand in front of a judge and with a clear conscience justify your decision, such as why you spent that money on some product or didn’t spend money on some safety feature? Make sure you have the right reasons for your decision and then proceed.

Leadership is all about decision making. That is pretty much what leaders do all day long: make decisions. Here is my final rule:

Make the right and wise decision based on all the knowledge and information you have at that time. Go full-speed ahead with that decision. As you go along you will gather more information, and if any of that additional knowledge is sufficient to warrant a new decision, then do it. Never stick with a wrong decision in the light of data which can help you make a better decision. Then, make the new decision and proceed full-speed ahead until/unless you get info that will change that decision.

Lead On!

Steve

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

Standing Rubble (part 1)

Posted on August 6, 2013 Written by

David, King of Israel from (1,000 to 960 BC) really, really wanted to build the temple but God said that David had too much blood on his hands from his battles with the Philistines. Instead, the job was given to his son, Solomon, who built an incredibly beautiful temple which lasted several hundred years until it was destroyed in 587 BC when Nebuchadnezzar’s armies invaded.

A few dozen years before the birth of Jesus, Herod’s Temple was finished until it was destroyed by the Romans in 70 AD after a Jewish uprising (same revolt as Masada). Herod’s Temple was the very one that Jesus lived in for 3 days as a young boy, the one that he visited numerous times, and the one that is commented on in Matthew 24:1-2:

As Jesus was leaving the Temple grounds, his disciples pointed out to him the various Temple buildings. But he responded, “Do you see all these buildings? I tell you the truth, they will be completely demolished. Not one stone will be left on top of another!”

The Jerusalem Church was led by James, the brother of Jesus. This was the very first center of Christian community and is sometimes described as the “mother of all Christian churches.” When the Romans invaded Jerusalem, Christians (and Jews) scattered throughout the world, taking their faith with them and spreading the Gospel. No one knows where that church in Jerusalem was located, and no trace of it is found today.

These are arguably the three most important structures in the history of ancient Judaism and early Christianity. There are many, many more recently constructed buildings of note (St. Peter’s in Rome, St. Paul’s in London, Haggia Sofia in Istanbul – originally a church, and countless temples) but none of these have the pedigree of Solomon’s Temple, Herod’s Temple, and the First Church of Jerusalem.

So, why am I writing about these? That’s my next post.

Lead On!

Steve

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

Church Fellowship Budget

Posted on July 9, 2013 Written by

Decades ago many churches decided that they would be intentional about church fellowship, so they created the Wednesday night supper followed by the mid-week Bible study and children’s programs. This system worked well till about the mid-1990s. For the past several years, this form of fellowship has encountered many problems, and increasingly churches are finding it hard to continue this programming. Some churches are overly wedded to the Wednesday night supper and view that time as the most important fellowship activity in the life of a church.

 

Fellowship is critically important to a church. I wholeheartedly believe in and appreciate fellowship times. Many, if not most, church fellowships involve people coming to the church for a food function. I’ve been blessed countless times with Pot-Luck Suppers, Dinners on the Grounds, etc. But I want to challenge the church of the 21st century to think outside the box regarding fellowship. In fact, I want to challenge the church to think outside its four walls and into its community.

 

The purpose of fellowship is for church folks to get to know each other in venues and activities outside of Sunday worship and Sunday School. This is an opportunity for people to talk about football, children, work, etc. in a “non-churchy” setting. This is a time for people to get more closely acquainted, to hear one another’s heart concerns, to laugh uproariously at stories and jokes, to make memories which will be recalled in years to come, and just to enjoy being with each other.

 

I realize that Wednesday suppers are a good attempt at accomplishing this goal, but frankly they don’t reach their intended goal. Here is an alternative: planning family-oriented events which are held outside the church grounds at least on a quarterly basis.

 

Three to six times a year, the fellowship committee of the church can use its budget to find, promote, and schedule events which put the church members into their community. For instance, the church will attend a baseball game together, have a bowling night, have a picnic in a local park with inflatables, or plan a weekend retreat at a beach or mountain locale, etc.

 

The idea is to involve the church in its own community and to be identified as a church. Too often the community sees the church as the people who attend and stay inside the building at a specific address. We all know that the church is not a building; it is the people, and they must be integrated into their community. Jesus himself spent a lot more time wandering around villages and cities than he did inside a synagogue. Jesus knew the value of being out and about instead of in and within.

 

How will this affect the Wednesday fellowship and activities? That is for each church to decide. I think many will decide that those funds could be better used to fund these events outside the walls of the church. If a church will conduct a study on how best to use their limited financial resources, they may determine that there is greater impact on their neighbors by having fewer but more significant events outside the church’s buildings. Will this affect current age-level programming on Wednesday evenings? Yes, and this is an opportunity for the church to be creative: to decide if it should change its age-level programming, to think about new dates and times to implement new opportunities, to “think outside the box” in ways that will help the church reach its community with the Good News of Jesus. Doing the same thing again and again isn’t reaching our world very well; in fact, it’s often not even reaching our own members very well.

 

Think creatively – after all, we are made in the image of the Creator, our incredibly imaginative God!

 

Lead On!

Steve

Filed Under: budget, church administration Tagged: ,

Church Debt #2

Posted on July 2, 2013 Written by

My previous post was a primer on church debt. In this post, I want to focus on the interest rates that churches pay. There is a simple way for churches to pay less in interest and use that money for staffing, buildings, programming, or additional payments on the principal.

First, indicators that you should refinance:

  • If a church has an interest rate that is more than 1% over the current market rate, then refinance
  • If the church’s current terms are less than 12 months from renewal, then refinance
  • If the church needs additional capital for a project AND the church’s debt-to-budget ratio is less than 200%, then refinance and include the additional amount in the new mortgage

One of the biggest questions facing church finance committees on the subject of refinancing is whether to get a fixed or floating rate interest note.

  • A fixed-interest-rate note is just that: for the life of the loan, you’ll always pay the same interest rate. It is easy to budget for this and there is a measure of certainty and even security in knowing exactly what the monthly mortgage bill will be. This is a good tool for small amounts.
  • A floating-interest-rate note is pegged to one of two interest rates: US Prime Rate (set by the US Federal Reserve and major US banks) and LIBOR (an acronym for the London Inter-Bank Offered Rate and is set in London as a basis for international loans). Floating rates can be either higher or lower than fixed rates – it is all dependent on the financial world. note that many banks will allow floating rates to be changed to a fixed rate at some time during the five year period.

No one knows what the interest rates will do over the next five years, yet that is exactly what finance committees are trying to guess. Do they lock in a fixed rate for five years to have a stable figure for the budget, or do they try to pay less with a floating rate knowing that if they’re wrong, the floating rate could go sky high before they can lock it in? Here’s my suggestion as to which interest rate tool a church should use: BOTH.

Instead of trying to guess either/or, do both/and. The church should take its current loan and get the bank to finance half in a fixed-rate note and half in a floating-rate note. Each month the church will make its regular principal and interest payments from its budget and capital campaign receipts. Then, as the church receives additional gifts toward the debt, the church will make additional principal payments against whichever note has the highest interest rate (fixed or floating). This is important – you want to first knock down the debt of whatever note has the highest interest rate. This may change during the course of the debt: the floating rate may go higher than the fixed or vice versa, but you always want to pay down whichever note has the highest rate, not the one with the highest debt.

This is a simple concept which may take your bank a while to accept, because it is not to their advantage. But this is God’s money – use it to the church’s advantage!

Interest Rate Hedges or Insurance: The financial world has come up with many tools to decrease the perceived risk in interest rates. My experience is that these are usually balanced in favor of the bank and they are not worth the extra cost to the church.

 

Lead On!

Steve

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

Church Debt #1

Posted on June 25, 2013 Written by

Many churches have sizable amounts of debt. Too often this debt hampers the church from paying its staff properly, maintaining its buildings adequately, or funding its programming sufficiently. Let me be clear: I despise church debt and encourage every church to do everything it can to get out of debt ASAP. Church debt is nothing more than giving money to a bank when the money should go elsewhere.

 

That said, I understand the reason for debt: to get some money up front to enable the church to construct facilities which will draw in people who can then provide additional receipts to pay for the staffing, buildings, programming, and debt.

 

I also understand that banks like to loan money, and they’ll tell a church that the debt limit is three times their annual income (much like a homeowner’s mortgage). I disagree: anything beyond two times will hamstring the church financially for years to come (much like a homeowner’s mortgage!). If your church’s debt is over 200% of your annual budget, you need to have a capital campaign to eliminate your debt as soon as possible or at least reduce it to a manageable level. Please pay attention to your debt.

 

All debt has three components:

  1. Time: Church debt is commercial debt in that it almost always has a five-year repayment time period. It is not like a homeowners’ mortgage which lasts 30 years but instead, church notes are a five-year note with a “balloon” at the end. The balloon means that the bank knows you won’t pay it all off during the note’s time limit of 5 years, so that means you’ll pay it all off in a balloon payment at the end of the time period OR you’ll refinance the debt (the latter is almost always the case). However, the bank bases its fee schedule on a 30-year note to keep the monthly mortgage payment low enough for the church to pay.
  2. Amount: This varies from church to church based on the need. I’ve seen churches do foolish things such as giving in to the desire to obtain a short-lived item and then putting that cost into the mortgage. For instance, some churches want a van so badly they’ll take that expense and add it to the mortgage, which means they’ll pay for that van for 30 years—about 20 years longer than the van will last. Please make sure you only finance things that will last at least the life of the mortgage.
  3. Rate: See my next post on this subject.

 

Church bonds: I’ve never been part of a church that floated bonds. However, I’ve seen churches use a bond issuance very successfully. This is a creative way to finance a church’s capital needs. Most of the bondholders will be the church members who will give money to the church to pay off the bonds. Occasionally someone from outside the church will buy a church bond.

 

It does take some money up front to work with the bankers and lawyers to get all the legal work done so ensure that you have some capital before you start down this path. Some churches encourage bondholders to gift their bonds back to the church during the course of the note. For instance, sometime people give a bond to the church at Christmas: they’ve “forgiven” the debt, so the church no longer owes principal and interest on that specific bond. Throughout the life of the bond, the church will pay out interest to the bondholders – the interest is paid from funds raised and gifted by members. Also, bonds are bought back by the church as the church has funds available.

Lead On!

Steve

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