Any time someone is about to experience something new, they are bound to have a list of questions. Asking questions is not a sign of weakness; it’s how we learn, grow, and improve. Asking questions demonstrates the humble strength required to acquire wisdom and expertise. Sometimes, when something is so new or foreign, we don’t even know what questions to ask. Many people learning to operate the finances of a church often find themselves in this position. They have a strong desire to manage the church’s money in a way that honors God but have no idea where to start.
Before grabbing ledger paper, opening Excel, or running reports from the accounting software, answer these five questions to build a better church budget. A church budget that honors God, accomplishes the church’s mission, and keeps the church on a solid financial foundation. If you are new or just trying to improve at building a church budget, here are five questions every church should ask and answer when crafting the budget.
What are the goals for the upcoming fiscal year?
The first step in building a church budget has nothing to do with accounting, calculations, or numbers. The first question the church must answer during the budgeting process is what it plans to accomplish in the upcoming fiscal year. Every year is different, and that can mean the focus for the year is different. Is this the fiscal year the church increases global outreach support by adding new missionaries? Maybe it’s the year to begin a local community outreach program to assist the underresourced in the area. Perhaps this is the year to focus on purchasing or improving the facility. Whatever the goal is for the upcoming year, it will have associated costs. Map out the goals and discover the costs before putting numbers into the budget.
What is the projected income (donations)?
One of the biggest mistakes a church can make when building a budget is incorrectly projecting the income. There are three ways churches typically get this wrong:
- Too High—Projecting an income that exceeds realistic expectations can quickly make the church financially vulnerable. A high projection may feel good when building the budget, but it can soon lead to making mid-year adjustments or, worse, a negative cash flow.
- Too Low—Projecting income below the actual donations for the upcoming year short-changes the church’s effectiveness and limits its ability to accomplish its goals and mission.
- Make it Match Expenses—This is by far the worst-case scenario, and it’s sometimes justified as having faith. This scenario occurs when the church lists all of the upcoming new costs and recurring expenses and then uses that as the total income, hoping God will provide.
Churches need to take the time to project income based on attendance and giving trends. The church must know two key statistics: average weekly adult attendance and total giving. Then, using a simple calculation, determine the trend.
What are the church’s debts?
List all the church’s debts, such as mortgages, vehicles, loans, etc., and the financial obligations for each. Budgeting for the minimum debt payments is essential, but it also gives the church insight into when to allocate additional principal payments to eliminate debt faster.
What are the projected expenses?
As with calculating the income, projecting the expenses for the upcoming fiscal year requires patience and data. While it may be easy to simply copy last year’s expenses, tack on a few percentage points to cover interest, and move on, that is a massive disservice to the church and lazy budgeting. Yes, the church can (and should) use a report that shows what was budgeted and how much the church spent. But only as a reference to ensure the budget includes recurring costs. The projected expenses must also include the new costs necessary to accomplish the church’s goals for the new fiscal year. Pro Tip: Compensation typically consumes over half of the church’s operating budget. Make sure compensation includes salaries (including new hires, eliminated positions, and raises), taxes, benefits (medical, dental, vision, disability, etc.), and retirement.
Does the budget support the mission?
When the church knows why it exists (its mission), it’s easy to evaluate whether or not the budget supports the mission. Like every other organization, churches add good things to the budget over time, but not everything supports the mission. This evaluation is particularly important when budget reductions are necessary.
Building a church budget can feel overwhelming, especially for those new to the process. Sometimes, knowing where to start or what questions to ask is hard. Determining the goals for the upcoming year is a great place to start. After the church leadership agrees upon the goals, it’s time to calculate the income and expenses. Make additional principal payments on debt to eliminate it as fast as possible. Once the projected income and expenses align, ensure the budget supports the mission. You don’t need to be an expert in church budgets to build a budget that honors God and accomplishes the church’s mission; you just need to know the right questions to ask to get going.
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