church administration

How Much Debt Should a Church Have?

Posted on July 17, 2012 Written by Steve Law

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: budget, church administration, church finances

Who is the Church’s Risk Management Officer?

Posted on May 3, 2012 Written by Steve Law

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: buildings, church administration, facilities

Tellers

Posted on March 26, 2012 Written by Steve Law

Most congregations have some form of tellers that count the Sunday offerings. There are no regular patterns:

some count on Monday, some on Sunday
some count during the service, some count after worship
some copy checks, some write down all the info
some enter data into the database system, some fill out forms and leave the docs for the finance office
some take an hour, some take almost an entire day to count
some teller teams have been disbanded leaving the job for the finance office staff and some teller teams will never give up their prize job

The purpose in having a Teller Team is to ensure that all funds are counted and deposited. It is a carry forward from days when the church didn’t have a staff to count the money – volunteers took turns counting the Sunday collection and depositing the money. In many, if not most, churches, those days are long past but the committee lives on and on and on and on. Most tellers will tell you they feel they are protecting the church by ensuring that no one steals the money. Funny story – I worked at a church where the extremely zealous Teller Team never wanted the church staff to touch the money and they cited a story from 50 years ago when money was stolen – but it was stolen by a member of the Teller Team!

Let me suggest the easiest way possible for both the Teller Committee and for the Finance Office staff. This will save time, improve accuracy, cut down on gossip, and make everyone happy – yes, it sounds too good to be true!

Once the tellers have the offering, they should spread it out on a table
The tellers should go through the pile and gather all loose dollars and coins
All loose plate cash should be added and written on the deposit slip on one detail line
Then the tellers should stack and open all envelopes (but not pull out the contents)
Envelopes with checks should be placed in one stack and envelopes with cash in a separate pile (envelopes with both, which is rare, should be in the cash pile first and then moved to the check pile after the cash has been removed and noted on the envelope)
Cash in the envelopes should be removed and the amounts written on each envelope
All envelope cash should be added and written on the deposit slip (same one as #3) on a detail line
Then total all the cash and coins and write them on their respective lines at the top of the deposit slip. Two members of the teller team should initial the deposit slip so that an alternate slip is not made.
You now have one deposit slip and all cash (currency and coins) for the bank
A member of the teller team can take the cash deposit to the bank or leave it for the staff to deposit
Next, rubber band all the cash envelopes together and another stack of the check envelopes
Take the stacks of envelopes to the finance office in a locking bank bag
The tellers have now finished their job and can leave.
1. Because the tellers do not see the amounts on the checks, they do not see what various people give. All too often I’ve seen tellers discuss a gift by Mrs. Smith and that this week’s check is bigger/smaller than last weeks and then wonder aloud what that means about her. Confidentiality is paramount in dealing with church money and if you have gossipy tellers, you’ve got a problem. Removing the temptation by removing the checks solves that problem!
The financial assistant will then scan the checks (if you don’t have a check scanner, you’ve gotta get one – they’re not terribly expensive but they are incredible timesavers!).
1. In every church I’ve seen, the financial assistant and a scanner are 10 times faster and more accurate than the tellers. All too often tellers make a (very human) mistake which means their total is not equal to the finance office total and that make the assistant have to search for the error – time she/he could use on something else.
When the financial assistant scans the checks, she/he can also scan the envelopes and the software will record an image of both check and envelope should you ever need to refer to them again (that happens more often than you think)
After scanning, the assistant gets a report from the software and prepares a deposit slip for the checks (the cash is on a separate deposit – see #8-10).
Ideally, someone other than the financial assistant will take the deposit to the bank to prevent embezzlement.
The offering/deposit totals are then recorded in the General Ledger of the church’s financial journal.
The finance office now has a record from the computer of the Sunday offerings and that paper record is rubber banded with the deposit slips and kept for seven years (that’s what a record retention schedule recommends). If you have scanned the offering envelopes, then shred them; if not, keep them with the deposit slips.
The financial assistant can now move on to the next project, probably payroll or accounts payable.

These steps are pretty easy to do. The tellers can do their job in about an hour. The financial assisant can do her/his job in about an hour IF there is a scanner (again, get one!). In two hours (maybe 3 for a big offering), all the church receipts can be totalled, prepared for deposit, and entered on the church’s database. That will save loads of time that can be used elsewhere.

The tellers will need some equipment such as:

A room where the tellers can lock themselves inside to preclude anyone from randomly walking in. Safety and security are paramount.
The room should have tables so the offering can be spread out
The offerings should ALWAYS be in the possession of two unrelated people. No husband-wife only teller teams or any other familial combinations; if a husband and wife are present, then a third completely unrelated person MUST be present.
Locking bank bags are good. If the tellers count right after or during the service, then the offerings should be placed in the bank bag after counting and the bags locked tight.
If the tellers finish on Sunday, then the bank bags should be placed in a safe; if the tellers won’t count till Monday, then the bank bags should be placed in a safe on Sunday morning. Then, on Monday morning, two people should go to the safe to retrieve the money.
- To prevent people from stealing money while it it in the safe, purchase a safe that has two combinations and then give the two combinations to separate, unrelated people. Those two people will always have to be present to unlock the safe. (An envelope containing both combinations can be sealed and stored offsite with a church trustee or a bank official.)
Since the tellers are only counting cash and coins, not checks, they shouldn’t need any adding machines. Even if you got $1,000 in cash, two different people can add that up in their head or writing down figures. Save some money and storage space – don’t buy the machines.

Some churches have completely disbanded the tellers and that is fine SO LONG AS you have enough internal controls to prevent one person from handling all the money by him/herself, especially the cash. Checks are not easily stolen (they can be but it is really hard) but cash is easy to pocket. Take adequate measures to protect the staff and tellers, but make the work as easy as possible.

Lead On!
Steve

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

New Year’s Letter

Posted on January 1, 2012 Written by Steve Law

I’ve got a job for the leader of your faith community: write a letter to your congregation about your dreams for 2012. Technically it is not a “New Year’s Resolution” letter but it is a letter about your hopes and vision for the church for the new year. Call it a “New Year Vision Letter.”

What should be in this letter? Well, it should be no more than one page – please don’t get long-winded or else people will stop reading after about two paragraphs (if you’re lucky). Use a 12 point font to make the letter easier to read – don’t cheat by using 8 point font to cram in more words! Make the letter no more than five paragraphs long using the following template:

Intro Paragraph – Write about 2011 and where the congregation has come in the past 12 months and even the years before then. Be brief, be very brief in this synopsis – this is NOT the purpose of your letter; this is just a starting point so that everyone is on the same page.
Next Two or Three Paragraphs – give three concrete (lots of details) ideas of what you want to accomplish in 2012. Flesh out each idea in one paragraph with financial costs, numbers of volunteers needed, dates by which the goals need to be met, and the promise of a party when each goal is reached. (I believe the church doesn’t party enough – we need to celebrate accomplishments more often but that requires knowing where the finish line is in each goal.)
Final Paragraph – a prayer of blessing on each reader and an acknowledgement of the generosity by the family of faith which has permitted the church to do all is has done so far. Being sincerely thankful is very important.

This letter should go out to every person in the church because it will help set the tone for the church in 2012. A good way to send out the letter is to include it in the 2011 statement of contributions which every church mails out to every member (at least to every donor) of the church. Every person will open that letter because they want to see how much they can write off on their taxes – when a letter from the pastor falls out, they’ll read that, too. Who knows, your letter may spark some dialogue with people – it can certainly be a conversation starter with your leadership. I know they want to know what your dreams are and how they can participate in making them happen – to benefit the church and the Kingdom.

Lead On!
Steve

Filed Under: church administration, church finances, church financial statements, communications, leadership, strategy Tagged: church administration, church finances, church financial statements, communications, leadership, strategy

Funnies – December 2011

Posted on December 1, 2011 Written by Steve Law

IRS Tax-Exempt Ruling Letter

Posted on November 29, 2011 Written by Steve Law

Whether or not a church should obtain its own 501(c)(3)ruling letter from the Internal Revenue Service (IRS) is a question with some confusion. It is a simple question with a multi-layered answer so here is my take on this issue.

The IRS considers, by definition, all churches to be exempt from federal income taxes. Thus, just because you are a church, the IRS will not tax the organization for income tax purposes. AND
Most churches that belong to denominational bodies fall under an umbrella that covers all churches in the regional, state or national organization. For instance, the local Episcopal diocese has a letter with the IRS which covers all churches in the Richmond diocese. That way, churches do not have to obtain their own ruling letter from the IRS. HOWEVER
Times are changing and church finances are getting more complicated every day. In 2008, some churches have intentionally sought to violate the IRS requirement that churches not endorse a political candidate. In 2004, the IRS revoked the non-profit status of 56 churches (albeit temporarily while there was an investigation). THEREFORE
Because some churches are getting involved in national politics, I am of the opinion that each church should control its own destiny as regards the IRS. I would hate for an umbrella letter (covering hundreds of churches) to be revoked because a few churches in that group decided to flaunt the IRS. My worst case scenario would be that the IRS would revoke the tax-exempt status of the entire umbrella while there is an investigation. In the end everything will work out fine, but in the meantime there can be some heartache because of the actions of other churches. So, my recommendation is that each church obtain its own ruling letter from the IRS. Yes, it is a pain to fill out the forms, get things approved, write a check for a few hundred dollars, and wait on the IRS for a few months, but think about the headache and hassle it could save the church later. Again, I feel it is important to control your own destiny and not potentially suffer because of the actions of other churches.

I hope that helps you and the decision by your church. I’ll be happy to talk with anyone about this.

Lead On!
Steve

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

Fundraisers for Youth Events

Posted on October 19, 2011 Written by Steve Law

Fundraisers have two purposes:

To make money in an effective and efficient manner
To build unity among the participants and interested people around a specific goal

All fundraisers need to have a balance between these two purposes and do it in a fun way (that’s the “fun” in fundraising). Too often, the group putting on the fundraiser focuses on one purpose to the neglect or even exclusion of the other purpose. That is not good and will harm future efforts. For instance, if you put on a concert and ask a bunch of people to work really hard in all the areas of the concert but then receive only $350 after all that effort, the volunteers will probably come away disillusioned about the results (but have good memories of the event). They achieved one purpose but nearly killed themselves without achieving the other purpose. On the flip side, if you put on an event and raise lots of money with little vested support, people may not feel as committed to the cause but feel incredibly proud of how much money they raised. Balance is good. Balance is key.

Another key to fundraising is to spread out the “ask” over a period of time such as several months. Some organizations do a “blitz ask” but they’ve done months of preparation (and received gifts during the prep time, too). Success is always, always a factor of how much effort you put into it. Every good fundraiser will require lots of effort on everyone’s part – make sure that you get enough “return on your investment” to have made all that effort worthwhile.

Some fundraising ideas for youth events:

Penny War

Boys versus girls. Every penny placed in the girls or boys jar is one point towards them. Every dollar added to a boys’ or girls’ jar is a negative 100 points towards them. After a month of war, the winners will be decided by who has the most points. The loser will then have to prepare dinner for the winners.
This is easy to do and raises a few hundred dollars without a lot of effort. This is a good balanced way to raise money in that every week you can promote it and even have a running total. Frankly, I do suggest that the money jars are emptied each week for two reasons: to announce the weekly running totals to egg on each side and to not have money sitting around in a jar which can walk off.

Spirit Nights

I know that both Chik-Fil-A and Tropical Smoothie have spirit nights we can tap into where during a certain time period, receipts taken will yield a percentage (normally 10 to 15 percent) to the student ministry. TS will even let us host a plinko game which raises a lot of funds.
The secret to working with local vendors (and some companies will sponsor car washes) is volume. The kids are going to have fun at the store and that will build unity – that is certain. How much money is raised is entirely dependent on getting people to come and/or buy tickets ahead of time. Kids need to be “in my face” about buying tickets. This a good idea and it can be held multiple times between now and when you need the funds without getting old and stale.

Yard Sale

The church rents out parking spots in the parking lot where people can host their own yard sale on the church’s property (the church makes money off the rent of parking spots). In another part of the parking lot, the church sells items that people donated for the yard sale (the church makes money off the sale of items). The church can sell concessions and make some money. There is always a fear of someone selling something offensive, but that can be addressed with the individual and you can let them know what we won’t let them sell (like porn magazines or offensive t-shirts).
This requires a LOT of effort and extreme coordination. Advertising is the key, too – get the word out that there is a community yard sale and people will buy reasonably priced parking spots ($10 is suggested) if they know there will be crowds coming. This can be a huge unity event for the youth as they work ahead of time and spend the entire day helping. It will raise at least a couple of thousand dollars.

Auction

This is my favorite way to raise money for youth functions. People bring in items that are of good value – other items should go to the yard sale! In one evening, there is a silent auction followed by a live auction (with a real, live auctioneer). Every year I’ve seen this done, the church raises over $12,000. The youth sell tickets beforehand and they drum up interest; the youth spend the Sunday and Wednesday before moving items; a team of volunteers helps coordinate the event; the youth work the auction by serving food and telling their story from the stage while people mill around.

Scholarships

Asking people to sponsor a kid or part of a kid for a trip always works. By this I mean informing people how much it will cost and then flat out asking them to fund ¼, ½, or the whole cost of a trip. People will do that. Afterwards, you can have the kid(s) that got the scholarship(s) to write a thank you and say how much the trip meant to him (them).

Sunday morning doughnuts

Krispy Kreme will sell doughnuts on the cheap for fundraisers and then you can re-sell them on a Sunday morning by the box.

What other successful ideas have you been a part of?

Lead On!

Steve

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

Capital Budgeting

Posted on August 9, 2011 Written by Steve Law

The List
Every church needs more money for it’s capital projects. Oh, I presume that you have a list of capital needs which means you’ve already done a study of them. If not, here’s what you need to do:

Itemize
- Make a list of every thing you need to do in the next ten years. 10? Yes, because I guarantee you do not have the money do it all this year so you need to have a plan of what you’re going to do over the next decade. Equipment will break down and need to be replaced. Keeping a list of your HVAC (heating, venting, and air conditioning) equipment and what needs to be replaced in the next few years will help you set money aside for those needs.
- Also, there are things that you don’t see now that you will need in the future. In 1990, no one had any idea of the power of the internet – now it is an indispensable part of every office. Who knows what the next 10 years will bring – be prepared to control the future rather than having the future take control of you.
- The list needs to items that you know about but also what others see. No one person knows all in a church, consult with others (both staff and lay members) about what should be on the capital needs list.
- Most capital needs lists are physical plant items: air conditioning units, roofs, paint, furniture, buildings, etc. There is nothing keeping a church from establishing a capital needs list with items related to non-physical needs – items that will help others outside the four walls of the church and/or will enable members to go farther and do more. I wish more capital needs lists had other items such as
  - Endowment or foundation funds: this would be a pool of funds to meet present and future needs of the church whether it is a physical plant need or a ministry need.
  - Mission fund for a specific trip coming up or to take care of a ministry need somewhere else.
Prioritize
- After you’ve got a list, put them in some type of order. The best order is one which indicates their priority for being accomplished – the priority of need. This order is very fluid – some things will drop in priority while others will rise according to the needs of the church at any given time. For instance, new interior signage may drop in priority when people realize that the condition of the children’s furniture warrants more attention and funding.
- This does not mean that you’ll do the items on the list in that order. Several things may interrupt such as
  - A donor sees something on the list that tickles his or her fancy and the donor decides to take care of that item(s). There are donors like this in every church – let members know about the list and you may be surprised by how many items are “just taken care of.”
  - Some items are so big that you can’t do them in one year; instead, items are taken care of in phases over several years. I’m doing that right now with several items: installing electric shades in the dining room and gym; replacing all copper gutters and downspouts with aluminum ones with gutter guards (so I never have to pay for the gutters to be cleaned again); putting in new windows throughout the church; etc.
Monetize
- Put a dollar figure beside each one. The dollar figure is very much a guess, but an educated one. Do not spend the time now to get quotes for every item, just take a stab at how much each item will cost (aim a little high, too!). That way, when people see the list, they’ll understand the scope of the needs. Also, if someone wants to “own” one of the items, they’ll know how much to give to the church to cover that specific item.
Date-ize
- Establish goals as to when items will be done. These dates can be fluid, of course. But if you don’t put some type of date/goal, then it may never get done. Put it on the list with a desired “due by” time frame even it is done piece-meal over several years.
Publicize
- Tell people what the list contains, why items are on the list, ask them for additional items for the capital needs list, be willing to alter the list as needed, and continue to tell people about the list. The more publicity you can create, the better. You’re not “poor-mouthing” the church, just making people aware of items that they may not know about or may have over-looked. Help people be aware of the needs – then they’ll support you in your efforts to meet these capital needs.
- One of the ways that I make my list available is to put it in a rack just outside my office door. I totally believe in transparency so I make all financial info available to anyone who comes to my office (and a limited amount online at the church’s website). That rack contains four items:
  - The latest audit by the independent audit firm
  - The most recent monthly financial statement
  - The current capital needs list
  - Give away books on stewardship and generosity (The Treasure Principle by Randy Alcorn and Fields of Gold by Andy Stanley)
- When a project is underway, let people know what is being done and why it is being done. AND, thank them for their financial gifts which made that work possible. Acknowledge their generosity every way you can whether it is in print or from the platform.
Review-ize
- Every few months (definitely once a year), go over the list. Move things around in priority, re-value items as you have new info about their cost, change the “due by” dates as needed, move items to the bottom “already done” category, etc. The capital needs list is organic – don’t let it be static.

The Money
I tell my vendors that while I cannot afford a new piece of equipment this year, I can pay for it in five years by setting money aside. Where does this money come from? Lots of sources – and that is key: tap various areas of the church’s finances in order to pay for the various projects. Finding different pools of money to do things will let you do more. Here are some examples:

Use the church’s reserve funds for things that are needed. That’s what the reserve funds are there for. Don’t deplete the reserve funds, but also don’t let those funds just sit there when they can be used for immediate and/or pressing needs. If necessary for a big project, tap the entire reserve fund with the understanding that the money will be put back if the church ends the fiscal year in the black.
If the church ends the fiscal year in the black AND it has fully funded the reserve accounts it needs, then use the excess to pay for capital needs. Make sure that the governing body of the church authorizes this expenditure and as often as possible, let the congregants know about this project and how it was paid for out of their generous gifts to the budget.
The church’s foundation was asked for money for the renovation (complete gutting) of the oldest bathrooms in the church. The foundation was informed that the total need is $100,000 and they would be approached five years in a row for $20,000 each year to do this work. The foundation agreed to fund this.
The gym needed new equipment. The need was made known to parents during Upward Basketball games and over the course of about 9 months, over $12,000 was received for this need. This money came from people outside the church so these gifts didn’t affect the church’s budget receipts – this was “gravy money” which we would not have received otherwise.
Talk about specific needs with various members of the church who you know have the gift of generosity. Twenty years ago a family donated funds to enhance a room in memory of a loved one. The room is increasingly out of date and needs some re-touching. I approached the family and they are more than willing to underwrite the cost of renovations to this room. In fact, I gave the family a ballpark of how much this would cost and they said that money is not a hinderance. They are a wonderful family and example of generosity.

In summary, keep a list (with lots of input), check it twice and thrice, find the money from lots of different pockets, spend the money while you tell people what you’re doing and why, and say “thank you” lots of different ways.

Lead On!
Steve

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

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