I recently read an article in Christianity Today about the fiscal mismanagement of Southwestern Baptist Theological Seminary in Fort Worth, Texas. It was so disheartening to read that the Seminary ran an average deficit of $6.67 million annually for almost 20 years, depleting its cash reserves. It’s hard for me to believe this kind of financial mismanagement could happen for this long.
While most churches don’t have total annual budgets nearly as large as the deficit the Seminary was running every year, it doesn’t change the fact that every time we read a story like this, it erodes the trust and credibility of all non-profits, especially churches. To make sure your church avoids these types of headlines, consider these three steps to prevent financial disaster.
Make A Church Budget
Regardless of the size of the church, every church needs to make a comprehensive budget every year. The church budget is the financial plan that allocates every dollar donated to the church to accomplish the mission. The church budget must be rooted in facts based on actual giving and attendance trends and expenses that align with the church’s mission. Here’s a quick recap for building a church budget:
- The Vision: Church leadership structures vary. Regardless of whether your church is part of a structured denomination that provides the vision for the upcoming year or your church is a small independent church, each church must determine the vision for the upcoming fiscal year. Before gathering data, looking at trends, and estimating income and spending, churches need to know the specific goals the church wants to accomplish through the budget and how it fulfills the mission.
- Estimate a Realistic Income Target: Every church must know how to estimate donations (income) for the upcoming year accurately. It’s the lynchpin of the budget. Churches should estimate their donations based on actual current attendance and giving trends. Inflating the estimate to meet the demands of increasing expenses is a dangerous game. Be as accurate as possible.
- Estimate Expenses: Using the prior year’s expenses as a guide, each ministry and operational area of the church needs to build its budget. In addition to the ongoing and recurring expenses, this is where the church adds any projects or initiatives to accomplish the vision for the year. Don’t forget to have a detailed breakdown of compensation expenses, including new hires and wage increases, as this typically takes up about 45%-55% of the entire budget.
- Compare the Income to the Expenses: This is the hardest part of the budget. It requires strong leadership committed to the mission and vision of the church to navigate this portion of the budget. The reality is that organizations, including churches, will have dreams and desires bigger than their budget. That’s healthy. What’s not healthy is ignoring facts. Churches that spend beyond their means will find themselves in a financial crisis. Make sure the income, less expenses, equals zero.
- Share the Results: Accountability matters. When the hard work of building the budget is complete, share the results with the board, the staff, and the congregation. It doesn’t need to give details of what each employee makes or how much each missionary receives, but it should show the total amount allocated to compensation and outreach.
Use A Team Approach
If you’ve ever wondered why having more than one person build and approve the budget is so important, look no further than what happened at Southwestern Baptist Theological Seminary. According to board chair Danny Roberts, “The seminary’s bylaws give the president full authority over the school’s finances.” A team approach helps ensure that the church budget has accountability and impartiality while supporting the church’s mission, vision, and goals.
Share The Results
The final phase of the church budget life cycle is to share the results. The best way to demonstrate openness and transparency and build trust is to share the results of the church budget. Churches should do this through every means possible, like a blog post, church bulletin, emails, newsletters, etc. The point is to get this information out there so everyone knows how the church plans to use the donations. It may generate questions, but that’s good. It shows that people want to know how their donations fulfill the mission.
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