When it comes to managing God’s money, churches need to demonstrate financial stewardship, which is Christianese for managing money in a way that honors God. Creating a church budget is the primary way to show the church is serious about how it’s investing its financial resources to accomplish the mission. But, creating a comprehensive church budget is not easy; it requires vision, time, data, analysis, buy-in, and prayer. In an ideal situation, creating a church budget would follow these basic steps:
- Define Objectives: Define the goals and objectives for the upcoming year based on the church’s mission, vision, and values.
- Project Income: Using historical data (at least 12 months) to trend donations and attendance, determine a realistic projection for the annual total of the upcoming fiscal year.
- Project Costs: This is where the goals and objectives come into play. Using historical expense data (at least twelve months) for compensation, operational, and ministry expenses, determine the projected costs for the upcoming fiscal year.
- Compare and Adjust: Compare the projected income to the projected costs and adjust the projected costs to balance two numbers. It should equal zero.
That is an oversimplified version of a church budget. Successfully projecting income is complex, and churches often overestimate their income to maximize their ability to pursue their mission. Left unchecked, overestimating the income can become detrimental to the church as the cash flow dwindles. But what about those instances when the income exceeds the projection leading to a surplus? How should churches respond when the donation and attendance charts trends are up and to the right?
First, take a moment to acknowledge and praise God for all He is doing in and through the church. Next, evaluate the surplus to determine if it’s a trend or an anomaly generated by a few large donations. A trend means that financial contributions will continue at the new, higher level. An anomaly implies that there may have been one or a few exceptionally large donations that may not continue on a regular basis. Finally, strategically determine the best way to prioritize allocating the surplus.
Depending upon the source of the surplus, here are five ways to prioritize a church budget surplus.
Pay Off Debt
Anyone who has been through Ramsey Solutions Financial Peace University is familiar with Proverbs 22:7, which says, “The rich rules over the poor, And the borrower becomes the lender’s slave.” Churches with debt, particularly non-mortgage debt, feel this bondage month after month. While debt is not a sin, it certainly impedes the financial plans of the church. For a church, debt often creates a financial barrier that prevents it from fully pursuing its mission. For this reason alone, churches should have a debt-elimination plan. And, when presented with a surplus in donations beyond the budgeted needs, use these financial resources to attack debt. Imagine how much ministry your church could accomplish without monthly debt payments or a mortgage.
Build Emergency and Sinking Funds
Once a church has eliminated all non-mortgage debt, it’s time to build funds to prevent the church from ever needing to use debt again by building an emergency fund and creating strategic sinking funds.
- Emergency Fund: There is no one-size-fits-all solution or dollar amount to use when building an emergency fund for a church. Each church needs to determine the dollar amount of reserves required based on many factors like bank requirements, current financial obligations, ability to pursue the mission, etc. If your church meets all of its current monthly financial commitments and complies with its bank loan covenants, then CapinCrouse recommends building an emergency fund that can cover 40 to 80 days’ worth of expenses. The key word here is expenses, not the monthly budget amount. Here’s an example of what that looks like:
- Actual expenses for a month = $75,000
- Actual expenses per day (30 days) = $2,500
- 20-days worth of expenses = $50,000 (not ideal)
- 40-days worth of expenses = $100,000 (good)
- 80-days worth of expenses = $200,000 (better)
- Sinking Funds: Start with the understanding that everything eventually wears out. A good roof can last between 20 – 25 years; when properly maintained, HVAC units can operate for an average of about 15 years, and sound systems range from 15 – 25 years. Knowing this information is more than great trivia; it allows churches to plan and build a replacement fund to prevent a full-blown emergency when these critical pieces of equipment fail. How much a church should set aside in sinking funds depends on the number of years left in the average life of the equipment. For example, if a sound system costs $100,000 and can last for 20 years, it would only require $5,000 a year for 20 years to fully fund a new sound system. If the sound system is already 15 years old, the monthly cost to build the sinking fund goes up dramatically to $20,000. Sinking funds are an excellent way for a church to plan for major expenses strategically.
Invest in Reaching People
In Matthew 28:19-20 Jesus said, “19 Go, therefore, and make disciples of all the nations, baptizing them in the name of the Father and the Son and the Holy Spirit, 20 teaching them to follow all that I commanded you; and behold, I am with you always, to the end of the age.” In the post-Christian, post-COVID world, the mission must remain unchanged, while methods need to adapt, pivot, and change. In many instances, churches need to go to people instead of hoping people will come back to the church. It’s time to evaluate the church and its effectiveness in reaching and engaging people and determine the financial barriers. Determine the most strategic way the church could invest the budget surplus to reach more people.
Invest in the Staff
For most churches, compensation consumes the majority of the total church budget; for a healthy church, that percentage falls between 45% – 55%. Often, churches looking for ways to maximize ministry impact do so at the expense of providing pay increases to the staff. Wage stagnation happens when an employee’s pay stays the same over a period of time. When you couple wage stagnation with the unprecedented inflation rate, is it any wonder that a higher number of people are considering leaving the vocational ministry? Invest in keeping the most valuable resources in the church – the people. For some, that’s a loaded statement, but it’s biblical. 1 Timothy 5:17-18, “Give a bonus to leaders who do a good job, especially the ones who work hard at preaching and teaching.” (The Message). The church must determine if pay increases are sustainable year after year or if providing a bonus is the better choice when looking at the options for a budget surplus. Analyzing the trends in attendance and giving will provide the clues necessary to discover your church’s trajectory.
Be Generous
“Now I say this: the one who sows sparingly will also reap sparingly, and the one who sows generously will also reap generously. 7 Each one must do just as he has decided in his heart, not reluctantly or under compulsion, for God loves a cheerful giver. 8 And God is able to make all grace overflow to you, so that, always having all sufficiency in everything, you may have an abundance for every good deed;” 2 Corinthians 9:6-8. Maybe your church needs to prayerfully consider how the budget surplus can impact the under-resourced people in the community. Does your church need to bolster its benevolence fund? Start or partner with a local food pantry? Help with the ever-growing financial needs in the local public schools? These are just a few ideas to prime the pump. Whatever the decision, be a church that sows generously.
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