Church budgeting Session 101 provided a solid foundation for creating the annual church budget. It supplied a working definition that a church budget is a cash flow plan to maximize the finances God entrusted to the church to accomplish the mission. The actionable items in Session 101 were identifying, integrating, and sharing the goals for the upcoming fiscal year based on the church’s mission, vision, and values. Then, Session 102 provided the basis for projecting the income for the next fiscal year, rooted in attendance and giving trends. Finally, Session 103 provided a framework to estimate expenses for the upcoming fiscal year. Sessions 103-E and 103-N provided a more detailed look into calculating compensation, typically the most expensive part of a church budget. With both sides of the ledger completed, it’s time to compare the projected income to the expenses.
Comparing the Projected Income to Expenses
At this stage in the budgeting process, the budget team doesn’t need to know the details of each operational and ministry budget. The goal is to determine if the expenses are over or under the projected income. In most cases, especially at this stage, the expenses should exceed the income. If not, there is either a missing budget (or several), or the church’s dreams, goals, and plans are not big enough. Use a simple spreadsheet to begin the comparison.
Create the following column headers:
- Functional Areas: The church lists all operational and ministry areas with a budget under this column.
- Percentage of Total Budget: This column will show the percent of the budget the individual functional area consumes. This column is beneficial when keeping costs like compensation within a healthy range.
- Total Budget: The budget team inputs the submitted first draft of each budget in this column.
- Prior Year Budget: The budget team inputs the budget totals from the current fiscal year for each area in this column.
- Difference: This column shows the difference between the first draft of the budget for the upcoming fiscal year and the actual budget for the current fiscal year.
- Percent of Change vs. Prior Year: The percentage of change from the current year to the first draft in this column.
Then create a row for each functional area and input the data. Use the example below:
| Functional Area | Percent of Total Budget | Total Budget | Prior Year Budget | Difference | Percent of Change vs. Prior |
| Compensation | 49% | $250,000.00 | $210,500.00 | $39,500.00 | 19% |
| Operations | 34% | $175,000.00 | $160,000.00 | $15,000.00 | 9% |
| Adult Min. | 3% | $15,000.00 | $16,500.00 | -$1,500.00 | -9% |
| Family Min. | 5% | $25,000.00 | $21,500.00 | $3,500.00 | 16% |
| Outreach | 10% | $50,000.00 | $45,000.00 | $5,000.00 | 11% |
| Total | 100% | $515,000.00 | $453,500.00 | $61,500.00 | 14% |
| Annual Income Target | $475,000.00 | ||||
| Difference | -$40,000.00 |
Making Adjustments
It’s easy to identify whether or not the expenses exceed the income; it’s just math. The real work begins when determining how and what to change in the submitted projections; this process requires leadership. Here are a few tips to help leaders navigate through this process:
- Identify What Cannot Change: Every church wants to maximize its donations toward ministry, but there are budget line items that are necessary – and usually expensive. Rent or mortgage, utilities, insurance, taxes/assessments, maintenance, repairs, custodial supplies, etc., are essential operating costs. In these inflationary times, most of these costs are rising. According to the U.S. Bureau of Labor Statistics, the Consumer Price Index (CPI), through December 2022, the cost of energy services increased by 15.6%.
- Evaluate Percentages: The spreadsheet used to evaluate the projected expenses provides the percentage of that line item compared to the total budget. Use this as one of the indicators to see if the church is within the healthy range. For example, is compensation within 45%-55% of the total budget? Because compensation takes up so much of the church budget, it may be a place to look for reduction opportunities. However, there are other factors to consider before making changes – like the Full Time Equivalent (FTE) to congregation size. Make informed decisions.
- Focus on Mission, Vision, and Values: After identifying the line items that cannot change and comparing healthy church percentages against the submitted expenses, it’s time to find and adjust operational and ministry budget items based on the church’s mission, vision, values, and focus for the upcoming fiscal year. This process can be challenging as some see it as personal. For example, if the focus for the forthcoming year is to serve the under-resourced in the community. Then the ministry and operations team collaborated to determine the cost of upgrading the kitchen and worked with local businesses to donate food for this new initiative. Reducing or eliminating this worthy effort from the budget can be painful for all involved. It’s the leader’s role to ensure unity and promote collaboration to align the projected expense to the projected income.
Now that the budget team has identified the difference in the projected income and expenses and the line items that cannot be changed or reduced, it’s time for the operational and ministry teams to start the revisions. Revisions often take just as long as creating the first draft, allowing enough time to collaborate and creatively find ways to accomplish the goals for the upcoming year. Session 105 will cover the steps required to finalize the budget.
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