4 Keys to Manage Your Church Budget in a Crisis

church budget planning

One of these two things are true.  
 
You’ve seen a shift in your giving amounts over the last few weeks. You haven’t seen a shift in your giving amounts, but you need a plan for the potential economic recession that is coming. 

The fact is that the unemployment rate across the country is at an all-time high. A huge percentage of businesses, business owners and employees have been affected by this pandemic and we will see how those numbers play out for the economy over the next several months. This is why – regardless of what giving at your church looks like today – you need to have a plan for how you will handle a potential financial impact to your church.  
 
Here are four keys to help you analyze and manage your budget in a time of crisis:  

Have a good understanding of what your numbers look like 

With any roadmap, unless you have a good understanding of where you’re currently at, you’ll have a really hard time coming up with a route that gets you to your destination. The same is true for your church budget.

In order to make smart budget decisions, you really need to have a good understanding of your current situation. This includes knowing your current numbers, trends and balances.  If you don’t know your financial numbers, you really don’t know your church. 

 Yes, I will admit that there are some guys that focus too much on numbers and completely miss their mission. But what we see more often is the reverse – pastors that have lots of big ideas and passion, but just guess when it comes to church finances.

Without keeping a pulse on the financial health of your church, there is no way to make wise financial decisions, plan for the future, or determine how and where you can actually save the church money. Knowing your numbers is simply good stewardship.  

What does this look like practically?  

If you’re a Simplify Church Bookkeeping partner, this part is easy. Just by looking at the monthly reports we send you, you should have a good handle on how your church is doing financially. Additionally, your account manager is available to provide you more detailed information, answer questions and alert you to potential problem areas. We can also generate year-to-date (YTD) reports to help you better understand the story your numbers are telling. Using this service can save you lots of valuable time and effort!

Okay, but what if you’re trying to manage things yourself? Well the most important report you need to analyze is your Statement of Accounts (Profit and Loss) Report. This will show you in detail what you took in last month and what you spent.  Some financial software solutions also offer the ability to match those numbers against your budget, so you can see how that your actual expenses are trending against your budgeted plan. 

You will want to review these reports for the last couple months, as well as look at your YTD trend. If you budget on a calendar year, you can look at the amounts from your first quarter as well. Obviously a lot has changed in the past several weeks as far as giving and income goes, but you want to understand what your expenses and income looked like before the crisis, so you can begin tracking any changes to that trend. Ask yourself, “What story are these numbers trying to tell me?

Analyze your critical expenses  

There is a very real chance that giving and income will go down for your church, either now or in the coming months. The good news is that without meeting physically, there are quite a few operational costs that should go down as well.  

Renters: If your meeting space is no longer open to public gatherings, you may be able to save on some rent expenses. Contact your landlord to discuss your options. 

Property Owners: If you own your building, you can keep the thermostat down and not heat or cool the worship center. 

Maybe you provide snacks, donuts and coffee during Sunday morning worship. While probably not a huge expense line in your budget, this is one place you can save a few dollars when cash flow gets tight. 

Go through your expenses line-by-line and see what you do not need or any expenses/services that can easily be cut out. Perhaps you have some subscriptions to a service that you aren’t really using. 

This is the time to determine which church budget expenses are critical and which ones are nice-to-haves. Understanding your critical expenses will help you analyze where savings can be found in your church budget. 

Things like payroll, insurance, and other fixed ministry costs will be much more difficult to cut during this time. If you haven’t already applied for the Payroll Protection Program to help offset payroll costs, watch this video to see if this might be a good option for your church.  (Yes, I know the funding ran out…but more funding will hopefully be available soon).

Pro Tip: if you own and have a mortgage on your building talk to your bank. They may have options available to you to help offset your payment during difficult times. Many banks offer interest only payments to churches during slow giving times.  Remember, you never know until you ask. 

Call your congregation to generosity 

Talking about generosity is one of those areas many pastors shy away from. Now is not the time to neglect talking about generosity. In fact, it is a disservice to both your people and your organization if you don’t talk about generosity in this season.  
 
It is much easier for us all to prioritize giving in seasons of abundance. Prioritizing giving to God in seasons of uncertainty and turmoil requires more faith and trust, but often leads to more opportunities to experience God’s faithfulness along with greater freedom and joy.  

Remind people each week how they can give – via online giving, text to give, or by mailing a payment to your church. You can also make it easy for people to drop off payments if you don’t have online giving options. Let people know that you have setup a convenient drop box to drop off their tithe payments.   

If you haven’t yet set up online giving at your church, now is the time to get started. And once people set up recurring giving, it makes it simple for them to continue to give generously (and it makes it much easier to predict your monthly income). Setting up online giving is quick and easy to do, especially if you use a system like Simplify Give. 

Beyond explaining the various ways to give, part of the discussion needs to be a reminder of why giving is crucial to the church, especially during a time when you’re not meeting together corporately. Explain how the funds are being used and how the church still is able to continue to function and to meet tangible needs through the generous donations of members.  

For a more in-depth discussion of this topic, we’ve put together a comprehensive guide on How to Talk About Giving & Create a Culture of Generosity in your church. You can access your FREE copy here. 

Prepare a church emergency budget 

Once you’ve analyzed your numbers and you know where things are at, it’s time to put together an emergency or contingency budget that will help you navigate through the next few months.   

  • What purchases were you planning to make in the next few months? Can any of those be delayed? 
  • Which expenses will help you move your church forward during this digital season?  
  • Which expenses are not serving your church right now? 

As you evaluate your expenses, think through you church vision/mission and strategic goals. Which expenses will help your church continue to grow? Which items fund your growth engines? Do you need to reevaluate any of your growth engines or goals?  

If you’re not sure why I’m bringing up the topic of growth engines and goals, check out this post on the seven “deadly sins” of church budgeting (and what to do about them) or this post on church budgeting 101.  

Now put your emergency budget together.  This is your financial plan to help your church not only survive this crisis, but to be ready for what comes next. You may never experience a dip in giving, but now you have a plan in place. As I’ve said many times, a budget is just a plan. But it’s an important one.  
 
It is fear of the unknown and uncertainty that breeds stress. When you put a plan in place, you relieve stress and better position yourself and your church to ministry to people during this very uncertain time.  

Look to the future 

In this season, many people are feeling confused and afraid. What better way for the church to show up than as people who are not operating out of fear, but out of faith and as good stewards of the resources God has given them. When your church has a solid financial foundation, you can focus your time and energy on being a light and a beacon of hope in this season.  

Not only that, you can position your church for whatever comes next. We don’t know when this season will end. What we do know is that once the guidelines on social distancing relax, there will be great need, but also an open door of opportunity. Will you be a church prepared to lead and serve and love through recovery and revitalization? Or will your church be focused on recovery yourself?  

Here’s another question: Do you want to figure this all out on your own? Or do you want to partner with a team of church financial experts to help you manage your church finances and plan for the days ahead?  

Our done-for-you payroll, bookkeeping and online giving services will take the financial burden off your shoulders and give you peace of mind. If you’re not confident in your numbers or you’re wasting valuable time trying to figure it all out, schedule you free consultation call today.  

Because this is also true: Taking time to make wise strategic and financial decisions now will help you navigate the days, weeks and months to come.  

Can a Church Show a Profit?

It’s the end of the year. You sent out an end-of-year giving letter and your congregation responded. 

Suddenly you have more money than you anticipated having. But then you worry: 

  • Is this a bad thing to have excess funds at the end of the year?  
  • Do I need to run out and spend it immediately? 
  • What should I do with this money? 
  • Will we lose our nonprofit status? 

You can breathe a sigh of relief. You’re not about to lose your status.  

There are four big questions that churches frequently ask about end-of-year finances. What most churches want to know is: 

  • Can we have a surplus of money at the end of the year? 
  • Should we aim to have a surplus at the end of the year? 
  • How much of a surplus should we aim for? 
  • What should we do with that surplus? 

When we say surplus, what we’re really talking about is the amount of money a church has after all donations and income have been accounted for, and after all expenses have been subtracted. In accounting terms, this is either a “profit” or a “loss.” 

Terminology is important here, since churches are not-for-profit organizations. As a not-for-profit, there are strict legal guidelines and laws that must be followed. Therefore, we need to be careful with the term “profit.” In this case, the more accurate term would be “net proceeds.” 

Let’s address each of these questions in order. 

Q1. Is it okay to have a surplus of money at the end of the year? 

The short answer is yes. Just because you’re a church doesn’t necessarily mean you can’t show a “profit” at the end of the year. 

A nonprofit can make a profit.  

But there are limits to what you can do with that profit. 

Your not-for-profit status impacts what you can do with the money that is left over. It ultimately it comes down to the purpose of your organization. 

A traditional for-profit organization makes money for its owners or shareholders. Profit is usually distributed to shareholders or put back into the business. 

On the other hand, a not-for-profit must have a “public or charitable” purpose. This means any end-of-year surplus should be used for a public or charitable purpose. 

What does this mean for you? As a church, you cannot distribute that money in any way to shareholders, investors or other people that may have a stake in the church.  

Pro tip: Just don’t give that money to individuals in any way at the end of the year. 

Q2. Should we plan to have money left over at the end of the year? 

You should absolutely have money in the bank at the end of the year. That is simply being a good steward of the resources God has given your church. Plus, it just makes smart financial sense.  

You want a financial cushion to prepare for the unexpected. This could be an unexpected expense, a downturn in giving or simply an unexpected opportunity. 

Q3. How much should a church plan to have left over after all expenses have been paid?

 The quick answer is it depends. 

There is no one-size-fits-all answer to this question. We’ve seen churches approach this question in a variety of ways. 

Some organizations take a very conservative budgeting approach. They intentionally plan to spend less than they anticipate they will receive in a given year.  

Other organizations budget based on what they received in the previous year. They then take whatever excess they receive from growth and allocate that money at the end of the year. 

Still others plan for an end-of-year giving campaign that they hope will bring the organization surplus at the end of the year. 

 I’ll give some more thoughts on this in a moment, but first, let’s discuss the last question. 

Q4. What should we do with this money? 

The answer to this question is also, it depends. Some churches allocate this surplus for specific needs within the church, some use it to establish savings and some use it to fund future ministry growth.   

Our advice is to strike a balance between savings and ministry. It’s always a good idea to save for a rainy day. In church life, you never know what the next week, month or even what tomorrow may bring. It’s fiscally responsible to have some margin in your accounts that allows for flexibility and financial security in the organization. 

It’s also good stewardship, however, to be able to distribute those funds to missions, local ministries or other ministry needs of the church. Does your church need some new equipment that perhaps you’ve been putting off? Does your facility need updates or improvements? Are you able to bring on some staff support or outsource some work that is causing you additional stress? 

However you choose to allocate these funds, the bigger point is that having a surplus at year end puts your church in a position where these decisions can be made. It gives you options. 

Let’s return for a moment to the previous question of how much to put aside. 

While it’s true that the exact amount depends on the circumstances of your church, there are a few principles that can guide us in this discussion. 

We’d contend that having too much left over at the end of the year means that you didn’t fully invest into your full ministry potential. Ultimately it comes back to the foundation of stewardship. We are called as churches to be wise stewards of the resources that God has entrusted to us.   

Stewardship involves both saving and investing. Good stewardship means that we’re using the resources to expand the mission of our church. It also means that we’re not putting our organization in a financially untenable position.  

If you want to learn more about how you can better steward of the resources God has provided your church, or you simply want to gain a better understanding of how to effectively manage church finances, sign up to receive free church finance, administration and growth tips delivered right to your inbox.  

If you’re ready to take the next step of taking the burden of managing your church finances off your plate, then let’s schedule a time to chat! We’ll show you how having a done-for-you financial management and accounting solution can help you and your church thrive! 

Church Budgeting 101

How to set up and audit your church budget

For many church leaders, the thought of building out a church budget can feel overwhelming. Maybe your church doesn’t currently have a budget. Perhaps you’re preparing to launch a new church plant or build a new building. Or maybe you just aren’t confident that your current church budget is working for you.

The good news is that building a church budget doesn’t have to be complicated. A budget is nothing more than a guide: A roadmap to how the church will allocate the resources they have been entrusted with in the upcoming year. In the next few minutes, I’ll walk you through the basics of building a church budget.

Why your church needs a budget

Once you learn how to create and maintain a budget that works for your church, you’ll discover that it’s an indespensible part of your ministry.

Don’t believe me? Here are a few things a well-defined budget can do for your church:

  • Answer questions about the mission and vision of your church
  • Set clear direction on how money will be spent and where the priorities of the church reside
  • Provide a filter for making spending decisions that may come up throughout the year
  • Offer a measure and benchmark to track the financial health of the organization
  • Set a standard to reflect and review throughout the year to make future ministry decisions

Getting started: Types of budgets

Most churches build a budget in one of two ways: 

  • Zero-based budgeting – What goes in, goes out

With this concept, you plan to spend everything you receive. Developing a budget is as simple as making an income projection, and then making a plan to spend the money that is received. 

  • P&L Budgeting – Plan to lose or plan to gain

Since we’re talking about churches, we can’t really talk in the true business sense of “profit and loss.” However, we can talk about planning for a loss or planning for a gain in a given year. Just because a church balance statement shows an excess (profit) at the end of the year, doesn’t mean the church is no longer a non-profit entity

Note: The danger with P&L budgeting is planning for a loss without a plan to cover. You can lose money on paper and still have cash flow. You might have money in reserves, investments, etc. However, you should always be aware of how much you are spending. Remember, a budget is NOT the same thing as a balance sheet. 

Budgeting basics: Income

The easiest way to start building your budget is to look at projected income. What sources are bringing you money? This includes tithes and offerings, but it could also interest, investments, facility rentals, dues, donations, etc. Once you’ve determined all your income sources, set a projected amount for each source. 

Are you on a growth track? If your organization has been around for a few years, hopefully you have some historical data to look at. Is your income trending up, down or staying stagnant?  

PRO TIP: If you haven’t jumped on board with mobile giving, now is the time. This is by far the easiest way to increase your income. According to Nonprofitssource (2018), “Churches that accept tithing online increase overall donations by 32%”

Budgeting basics: Expenses

Now that you’ve projected your income for the year, let’s look at common expenses. As I stated earlier, a budget can be as simple or as complicated as you want to make it. As your ministry develops and grows, the number of expense categories will also grow. 

Especially if you’re just starting out, it can be helpful to think about things in terms of “buckets.” What is the mission of your church? How can that mission be broken out into broad categories or “expense buckets”?

For this simple exercise, let’s start with three “buckets”:

GROW (Inside Church)

  • Ministries (children, youth, adults, worship, etc.)

GO (Outside Church)

  • Local Outreach (evangelism, events, etc.)
  • Missions 

OPERATIONS 

  • Personnel (salaries, benefits, etc.)
  • Administration (operating expenses)
  • Facilities and Equipment (maintenance, utilities, insurance, etc.)

Once you’ve established your categories, do your best to fill in projected expenses. Again, any historical date you have will help a ton here. 

Now what?

Now compare your projected income with your projected expenses. Do they match? Are there categories that need to be adjusted?

Now ask yourself the following questions:

  • Does the budget reflect the church’s priorities?
  • Are there areas where spending needs to be increased? Decreased?
  •  How does this budget align with the church’s growth goals?

Use these questions as a guide to make any necessary adjustments to your budget.

Ask for help when you need it

This is building a church budget in a nutshell. You can absolutely do it. But there are ways to maximize the effectiveness of your budget to help you grow a healthy church. And if budgeting isn’t you’re thing, it’s okay to ask for help. 

Here are a few ways to get the help you need:

  • Download our free 10-step Church Budgeting Checklist. Whether you’re putting together a budget for the first time, or simply looking to improve your budget, this will give you prompts to think through as you create your budget. 
  • If church finances aren’t you’re thing, we’re here to help. Our done-for-you church bookkeeping service will take away the guesswork and overwhelm out of managing your church finances properly. Get accurate monthly reports delivered straight to your inbox and peace of mind that you’re not making a costly financial mistake. Schedule a free demo today

The Procrastinating Pastors Guide to Annual Church Budget Planning

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We published last week the 3 Reasons Your Church Needs an Annual Budget and had some good responses from pastors that agreed, but wondered what were those next steps to getting their annual budget planned.

Today, we’ll give you 6 steps to Annual Church Budget Planning started. From these simple steps, you’ll have most of the framework in place to have an Annual Church Budget you can use for your ministry.

Step 1 – Review Last Year’s Church Budget

One of the best indicators of how you are spending and allocating your spending for your ministry is to look back at the historical patterns. Review this past year as a Profit and Loss statement. It will show you what you took in (income) and what you spent (expenses).

Look for any patterns. Also, look for any areas that have bigger numbers. When you look at yearly spending as a whole, over the entire period of time, you may get some surprises that you didn’t expect once things are put into perspective. Often, we’ll have churches that don’t realize what seemed like a small amount they were spending weekly, when added up over the year actually becomes a bigger percentage of budget than they expected.

Use these findings to decide if there are areas you need to focus or re-think how you’re allocating funds.
“Be honest here. If you’re spending $100 a week on donuts, and throwing out 2-3 dozen every week, it may be time to analyze or help your donut buyer plan better!”

Step 2 – Project your church year end financial

Ok, now we’re going to get into the nitty gritty of planning.

Since we’re not quite complete with the year, we’ll need to do some projecting of how things will end. The good news is if you’re reading this post in late November when it is published, we only have a few weeks left of the year so the projection will not be too hard. However, since you may be reading this at another time, we’ll show you a quick way to project.

Take your YTD Profit and Loss report for your church. This should show you what has been recorded as income and expenses so far this year. If you’re using Quickbooks, or hopefully our Simplify Church Bookkeeping System, this report will be pretty easy to produce.

If you can, export that report to Excel.

Once you have it in Excel, create a formula as follows =SUM (Col # / # of months in report) * 12. It will end up looking something like this: = SUM(B2/11) * 12

On the cell with your formula, grab the little square at the bottom right of the cell. Click and hold as you pull down so that you are highlighting all the way to the last row of the report. This is a quick way to duplicate the Excel formula you just made for all the rows.

What did we just produce?

This new column will be your End of Year projection on how you will finish the year. From this information, you can now start to project your Church Budget for the new year.

Step 3 – Analyze Year End and Plan the New Year

This is where the real planning begins.

Use the information you just produced and begin to think through your next year. I would re-color or highlight any numbers that are going to stay the same in the next year. This may be things like Rent, Subscriptions, Fees and other expenses that you are committed to or are vital to your ministry that you already know you will use in the next year.

PRO TIP : Add numbers into a third column in Excel so you have:
Column 1 – Real numbers produced from your Church Accounting Software
Column 2 – Projection from the equation you created in Step 2
Column 3 – Numbers we’ll enter as we create the next year’s Annual Church Budget

As you review line by line, think about those expenses that made up the numbers. Do they seem high? How does that line contribute to your ministry? Does that expense help you fulfill the Mission and Vision for your church?

Think through the spending of each line with those questions as a filter and use that to analyze what you’ve done so far.

As you complete your review, use Column 3 to put your final numbers for the next year’s church budget.

Step 4 – Get input from your ministry leadership team and key ministry leaders

Once you have a draft of the budget, which should be completed now in Column 3, share it with your ministry leaders. Get their input and thoughts.

If you have a staff, this is a good time to get their input into their ministry area and their plans for the new year. If we had more time, or had started this sooner, we could have had them draft their ministry area and then plan accordingly. Since we’re at crunch time, we can give each leader a primer for their decisions, and let them have input into the process.

Have a discussion with each leader about their area. Ask the same questions you considered in your preparation for the spending in their ministry area. The key here is to accept their input and get “buy in” from them. Let them feel a part of the process and understand why we have a budget, and how important good financial stewardship is to the success of the ministry.

If there are any adjustments that come up here in those discussions, adjust your budget at this point so you have a good, prepared final draft to present for approval.

Step 5 – Begin the preparations necessary to finalize and approve your annual church budget

If your church by-laws or constitution requires it, this is a good time to start scheduling whatever meeting is going to be appropriate for a vote on accepting this as the budget for your ministry.

It may also be required that a draft of the budget is required to have out for review to your membership as well. Get this information out soon as well so that people can be well informed. Having a well-planned and thoughtful budgeting process can help to alleviate some of the unnecessary headaches and drama that so often plagues ministries in this process.

Step 6 – Review the Church Budget Monthly and Quarterly in the New Year

Now that we’ve spent the time to prepare the budget, let’s really put on ministry on fire and use that planning throughout the year.

Each month or at least each quarter, do a review of your income and expenses against your budget.

PRO TIP: Simplify Church Bookkeeping clients get this report each month for a quick and easy review!

As you move throughout the new year, you will now have a financial road map for your church. You will find ministry decisions become easier (from a financial standpoint anyway) as you are able to look at things and plan against you expected annual church budget.

Hopefully you get a chance to start your budgeting process now. I’ve been in your shoes before and know as a pastor you wear many hats. If you’re like most, those hats that seem daunting, or you’re not exactly sure how to complete are the ones that get put on the back burner.

The steps I laid out here can be completed in just an hour or so. The analysis part make take a bit longer but it will only take a short time to get there. If you need some help, advice on your budget or want to get this off your plate completely by using our Simplify Church Bookkeeping System, Schedule a demo today.

Hey! We’re offering a webinar on Wednesday December 7, 2016 where we will go through these steps and I’ll show you exactly the steps I go through to create church budgets. If you’re interested, Register Here!