Our church recently met with the vice president of the bank, who holds the note for the church’s loan. He’s a new VP at the bank and wanted to see our facility and have an opportunity to meet us face-to-face. Since it’s been almost five years since the last rate reset, it was the perfect time to meet. Confession time: even though our church enjoys a great loan-to-value and we meet or exceed the loan covenants on cash reserves and the TFCC (Times Fixed Charge Coverage), I always feel a little like we need to prove the church is worthy of the loan.
During the meeting, we shared our attendance and giving trends, as well as our outreach and discipleship plans for the upcoming year. We explained that because we closely monitor our church budget percentages, we noticed our compensation seemed high and that we used the FTE (Full-Time Equivalent) to congregation ratio to make adjustments to keep our spending in alignment with our giving. I think he was relieved to hear of our diligence and commitment to stewardship. He said we would be surprised to learn how many churches don’t have a budget, do not accurately estimate their income, or do a “set and forget” budgeting style. All three can lead the church into financial trouble.
Why Your Church Needs A Budget
Hearing the vice president of a bank share that many churches don’t even spend the time to create an annual budget knocked me back in my seat. A church budget isn’t a lack of faith; it’s an acknowledgment that everything belongs to God and that we are to manage His resources well—especially money. The church budget is the plan that shows how generous, cheerful, and often sacrificial giving fulfills the church’s mission and vision. Clearly defining how the church spends each dollar donated provides accountability and transparency. A well-crafted church budget reflects the heart of the church (Matthew 6:21). Creating a church budget provides insight into the church’s health by revealing the percentage of funds allocated to essential spending areas like compensation, operations, and ministry. Wise churches craft a church budget. “There is precious treasure and oil in the home of the wise, But a foolish person swallows it up.” Proverbs 21:20.
Estimating Income Accurately Matters
Having established the need for a church budget, the church must take the time to project the donations accurately. In other words, the church should not list all of the expenses and dreams it wishes to accomplish and then force the income to match the dreams. Estimating the income takes time and uses historical attendance and giving data trends. Here are the basic steps to create the estimated income:
- Sum the total donations for the last 12 months.
- Calculate the growth rate using at least 12 months of attendance data.
- Multiply the donation total by the growth rate (it could be a negative growth rate) to calculate the estimated income.
A successful church budget aligns the expenses with the estimated income. It often leads to a refining process that involves tough decisions to reduce spending.
Performing Periodic Monitoring/Adjusting
The “set and forget” budgeting method can also lead a church into financial trouble. While creating a church budget is essential, the church must follow the plan; otherwise, it’s just a math exercise. Churches need to run monthly reports like the Statement of Financial Activities (SOA) and the Statement of Cash Flow to track the progress of income vs. spending. While the church must produce and analyze the reports monthly, the seasonality of ministry dictates that discussion and decisions about budget adjustments happen quarterly.
Meeting with the bank’s vice president, who holds the note to our mortgage, was a very positive and encouraging experience. We had the opportunity to share all that God is doing in and through our church, and he provided some new tools to help us improve our financial tasks. It was a great reminder of our responsibility to manage God’s money in a way that honors him.
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