Should You Outsource?
Church bookkeeping is not often a subject they teach in seminary. It’s often seen as one of the “necessary evils” of church organization. Bookkeeping is rarely viewed as an important element of church management, and outsourcing church bookkeeping is not often high on the list of financial priorities for the church. For church plants and small churches, it is often seen as a luxury. More often, church bookkeeping is often turned over to a volunteer or member with some financial experience.
After almost two decades of working and serving churches, we’ve learned that certain areas of ministry are too important to rely on in-house volunteers. Church bookkeeping is one of those areas.
The problem is that if neither the pastor or the well-meaning volunteer knows how to properly set up and maintain a proper church accounting system, you end up with an ineffective church bookkeeping system at best…and often financial errors that can end up costing the church much more in the long run.
Good Stewardship in Churches
None of these financial decisions are made with ill-intent. Indeed, in attempting to be a good steward of the financial resources entrusted to the church, there is an appeal to using a volunteer to save on costs, or to use an in-house church member to make things simpler. However, in our experience in working with hundreds of churches, this often creates more problems than it solves. Our hope is to help more churches avoid all-too-common financial mistakes and implement best practices for more effective church stewardship.
What Does a Church Bookkeeper Do?
When it comes to best practices for church finances, one of the most common questions we get is, why should we hire someone outside our church to do church bookkeeping? Before we discuss some of the benefits of outsourcing church bookkeeping, I think it’s important to lay the foundation for what a church bookkeeper should be doing for your church.
Church bookkeeping is an essential role, as it helps ensure that the church is using its resources wisely and responsibly. Here are some specific tasks that a qualified church bookkeeper should be doing for your church:
- Recording all financial transactions: The bookkeeper should ensure that all financial transactions, including donations, expenses, and salaries, are accurately recorded in the church’s financial system
- Reconciling accounts: Your bookkeeper should regularly reconcile bank accounts and credit card statements to ensure that all transactions are accounted for and that there are no discrepancies
- Generating financial reports: The bookkeeper should be able to generate financial reports, such as income statements and balance sheets, to help the church leadership make informed decisions about the church’s finances
- Managing payroll: If your church has employees, the bookkeeper should be responsible for processing payroll, including calculating salaries and deductions, and ensuring that payroll taxes are paid correctly
- Managing accounts payable and receivable: The bookkeeper should be responsible for managing accounts payable (bills that the church owes) and accounts receivable (money that the church is owed)
- Ensuring compliance: The bookkeeper should be knowledgeable about relevant tax and accounting regulations and ensure that the church is in compliance with these regulations
- Recording all financial transactions: The bookkeeper should ensure that all financial transactions, including donations, expenses, and salaries, are accurately recorded in the church’s financial system
In essence, a knowledgeable church bookkeeper plays a critical role in managing the financial affairs of the church. A good bookkeeper can help the church make wise financial decisions, while a well-meaning, but untrained bookkeeper can end up costing the church a lot more in the long run.
How is Church Accounting Different from General Accounting?
A second question we often receive is, how does church accounting differ from standard accounting?
One of the biggest reasons that I am such a proponent of churches outsourcing their church bookkeeping and accounting roles, is that financial management for churches is very unique. It is important that whoever is handling the church’s finances be informed about tax guidelines and best practices for structuring a chart of accounts for churches. Unfortunately, there are a lot of misconceptions and incorrect advice being given.
Like other nonprofits, churches often fall under the direct requirements of the 501(c)3 tax code. Additionally, churches often rely on a number of different sources of revenue, that depend on the generosity of your church’s congregation. Sometimes restrictions can accompany these revenue sources. Using this money outside of its designated purpose can create issues for the church and can even cause a church to lose its 501(c)3 status.
Call them restricted funds, designated accounts, or donor designated giving, these funds are a popular- and widely misunderstood – aspect of church accounting. Although beyond the scope of this article, we advise churches on how these types of funds can actually be harmful to a church’s bottom line, and how to successfully move away from these designated funds.
The bottom line is that while church bookkeeping and accounting involves many of the same principles as standard accounting, there are unique considerations specific to churches. In our opinion, it is essential that whoever is managing the church finances understands these differences, so that the church can effectively steward its financial resources.
Does it Matter Who Does the Church Bookkeeping?
There will always be those that say it doesn’t matter who does the church bookkeeping, so long as it gets done. And as a starting point this is true. Doing your books is better than not doing the books. But unless the books are completed accurately, efficiently and with the best interests of the church in mind, it is a recipe for failure.
We understand that there is a strong temptation to save on costs by letting a volunteer manage the church’s books or assigning it as an additional duty to a church staff member. Based on our experience in working with hundreds of churches, this practice does not set your church up for long-term health and financial success. Here are six reasons to outsource your bookkeeping and accounting.
6 Reasons to Outsource Church Bookkeeping and Accounting
1. Expertise and Experience
Church-specific bookkeeping firms have specialized expertise and experience in bookkeeping, accounting, and financial management for churches and non-profits. They can provide a higher level of expertise, which can lead to more accurate and informative financial statements, better budgeting and forecasting, and improved financial decision-making.
Church finances can be difficult and confusing. Add in misconceptions, a lack of knowledge about best practices for church financial management, and frequent turnover on who is actually responsible for ledger inputs, and it only takes so long before no one really knows what’s going on.
Did you know most churches transition volunteer bookkeepers every two to four years? Often, it’s just a matter of time before you have a “Frankenstein-ed” financial system.
Beyond “normal” bookkeeping standards, there are additional requirements that come into play because the church organization is more than likely a not-for-profit organization. And, as mentioned above, many churches operate and maintain designated funds, with donor money allocated to particular projects and events. Proper fund management, along with correcting an unorganized financial record-keeping process, can be overwhelming for a volunteer, even one that has previous experience in accounting.
2. Objectivity
A second reason to consider outsourcing church finances is a sense of objectivity. Outsourcing bookkeeping to someone not connected to the local congregation provides a level of objectivity that may not be possible with an in-house bookkeeper. A neutral, third-party bookkeeping firm is not emotionally invested in the church; therefore, they can provide a more objective view of the church’s financial situation.
Candidly, if you’ve been around enough churches, you are likely to hear horror stories about church finances, such as the over-zealous treasurer who sees their role as the gatekeeper for all spending.
I’ve heard several variations of this story. The well-meaning church treasurer views themselves as the sole expert on the church’s finances, and, in so doing, begins to dictate to the pastor and church elders how the financial resources of the church should be spent.
While oversight is important, this situation can lead to a lot of conflict over how ministries are funded and cause a lot of hurt feelings in the process. Sometimes, the person handling the church’s finances can even be the reason church members are hesitant to give to the church.
3. Cost Savings
Hiring an in-house bookkeeper can be costly, as it requires paying a salary, benefits, and other overhead expenses. Outsourcing bookkeeping can be more cost-effective, as the church only pays for the services they need and can avoid the expenses associated with hiring an employee. Once you hire the first employee for the church, the organization and operating requirements become infinitely more complex.
What about using a volunteer? On paper, it can look like you are saving the church money by using a volunteer instead of outsourcing financial oversight. However, as this article describes in greater detail, you usually get what you pay for.
Free is rarely ever free. There is always some type of cost involved. The church finances are now just another task on the volunteer’s to do list. How long will you have to wait to get a check request processed? Will they be able to provide you with regular reports and get you financial numbers when you need it? What will you do when the person goes on vacation, or has a family emergency arise?
In addition to relying on the volunteer’s schedule, using someone that isn’t knowledgeable about best practices for church financial management can actually end up costing the church more in the long run. Many churches find that having a dedicated church bookkeeping partner helps the church better save and spend resources, saving the church money.
4. Time Savings
Again, the temptation to find someone on your church staff, or within your congregation, to manage the books is normal. But in addition to the hidden financial costs trying to manage it all on your own, the DIY approach can waste valuable time, cause a lot of headaches, and take resources away from where they would be most effective. This is what we call ministry opportunity cost. If the responsibility takes time and energy away from something that you’re better at, or should be focused on, it will actually cost more in the long run.
For example, you know that Suzie has an accounting degree, so you ask her to manage the church finances. However, even though she’s able to do bookkeeping, is that where Suzie can best utilize her gifts? Is that where she feels called to serve? What if she would be better serving on the worship team, or leading a bible study?
Most churches I know struggle to find enough ministry volunteers as it is. And, often times, churches ask their members to volunteer to the point of burnout. This is not an effective strategy for long-term health and future church growth.
Outsourcing church bookkeeping to church financial experts can actually save the church time, allowing church staff to focus on other important tasks, such as ministry and outreach. And it can prevent you and your church volunteers from burning out.
5. Compliance
If you and your team are wasting valuable time and energy trying to do it all on your own, remember that good enough is not the goal. Third-party church bookkeeping firms stay up-to-date on the latest laws and regulations governing financial reporting and compliance. They can help ensure that the church is in compliance with all regulations and avoid potential legal or financial penalties.
Going back to the earlier discussion on expertise and education, if a volunteer (or paid) bookkeeper classifies an employee incorrectly because they didn’t know the correct guidelines, you could be subject to back taxes and penalties. Unfortunately, ignorance of the law is never a valid excuse when appealing to the IRS.
6. Liability
In general, bookkeepers are responsible for accurately recording and tracking financial transactions for their organization. Volunteer bookkeepers and in-house bookkeepers are typically subject to the same legal and financial standards as professional bookkeepers. This means they can be held liable for mistakes or errors in their work, just like any other bookkeeper.
If errors or omissions occur, the bookkeeper (paid or volunteer) can be held responsible for any resulting financial losses or damages. This can include errors in financial reporting, failure to comply with tax regulations, or improper handling of financial data. However, the extent of their liability may depend on their specific role and responsibilities within the organization.
To minimize the risk of liability, it’s important for volunteer bookkeepers and in-house bookkeepers to receive appropriate training, follow best practices for bookkeeping, and seek professional advice when needed.
If all this sounds overwhelming, remember we’re here to partner with you in ministry and take the burden of managing church finances off your shoulders, so you can focus on growing a healthy church!
How Much Does it Cost to Outsource Church Bookkeeping?
Outsourcing church bookkeeping can provide many benefits, such as saving time and reducing the risk of errors, and ultimately helping the church to better manage its finances. But it’s important to understand that the types of bookkeeping firms vary, and the costs associated with using them can vary widely.
We recommend doing your homework and choosing to partner with the service that best fits your church’s needs and budget. Here are some questions to consider when it comes to choosing an third-party bookkeeping service.
- Does the service offer a monthly fee option, or do they charge by the hour? Some organizations offer a monthly flat fee, depending on the size and complexity of the church’s financial transactions.
- Does the service understand the unique needs of churches? Are they experts in the complexities of church accounting, or do they at least know the ins and outs of not-for-profit guidelines?
- Is it a turnkey solution? Does the service use standard bookkeeping software, or do they offer proprietary systems and processes designed to streamline and simplify church bookkeeping for churches?
- Is it a piece of software, or a done-with-you service? Some services provide church accounting-specific software, but no on-going support or guidance. If they do provide guidance, often it is just reviewing the work you did in their software and not really having an active role in the process.
- Are they a one-stop shop? Does the service reconcile your accounts, generate financial reports, manage accounts payable and receivable, and ensure compliance?
- Do they offer tiered pricing? Is it a flat fee, or do they offer pricing based on the size of the church and the complexity of the accounts? Don’t pay for more than you need!
- Are they mission-focused? Does the service care about partnering with you in ministry, to allow you to focus on reaching more people for Christ?
- Does the service offer a monthly fee option, or do they charge by the hour? Some organizations offer a monthly flat fee, depending on the size and complexity of the church’s financial transactions.
When is it Time to Outsource Church Bookkeeping?
How do you know when it’s time to outsource church bookkeeping? As most church planters know, sometimes it’s all-hands-on-deck to get a church up and running. Even though the goal may be to eventually transition to a third-party bookkeeping service, it can sometimes feel financially out of reach. So how do you know when the church has the resources to utilize a bookkeeping service?
Obviously, each church’s financial situation is unique and the decision to utilize a bookkeeping service should be based on the specific needs and goals of the church. But it is worth talking with a qualified accountant or church financial professional, regardless of the size and resources of your church.
Often it is church finances are what trip pastors up the most. Many churches find that having a dedicated church bookkeeping partner helps the church better save and spend resources, saving the church money and allowing the church to grow.
Simplify Church was originally founded to help church planners launch and manage their finances and accounting. That’s why we offer a scalable system designed to grow with your church or organization, from conception to established ministry. We have a tiered pricing structure designed specifically for church planters, who often have limited startup funds.
Don’t hesitate to talk with a church bookkeeping company or church financial advisor and ask what options they may have to support the needs of your church.
Bookkeeping Tips for Small Churches
Having a church bookkeeping service may seem like a luxury for small churches. But creating a healthy financial foundation can actually set your church up for success in the long run. At Simplify Church, we believe that you shouldn’t have to be a large church (or have the budget of a large church) to get the tools, and dedicated support and advice to make smart financial decisions for the health of your church.
Our sweet spot is helping small-to-medium size churches with church finances. We offer affordable options based on the size and of your church. We’re here to take the burden of managing church finances off your shoulders, so that you can grow a healthy, thriving church.
Best Bookkeeping for Churches
If you aren’t 100% confident in how your church finances are being handled, then it’s time to get the help you need to build a financially healthy church.
At Simplify Church, we’re here to partner with you in ministry and take the burden of managing church finances of your shoulders, so you can focus on growing a healthy church.
We understand the challenges of doing ministry, because we’ve been there. When you choose to partner with Simplify Church, you get an entire team of church bookkeeping experts dedicated to helping your church thrive. We get church AND business.
Get the confidence and support of a team that knows exactly how to help churches build strong financial foundations. We’d be happy to jump on a call and show you what’s possible for your church. Let us worry about the financials so you can focus on ministry.
