It’s almost May, and for our church, that means it’s time to start planning the upcoming fiscal year’s budget. In case you are wondering, our fiscal year begins in October and ends in September. That’s right; we take five months to prepare the budget fully. Of course, not every church needs that much time, but following a time-tested process ensures the team creating the church budget demonstrates good stewardship. The church budget is the tool that forecasts the donations for the upcoming fiscal year. And the church budget is the tool that reveals the priorities of how the church intends to spend each dollar donated to accomplish the mission. Church budgets demonstrate planning, commitment to the mission, and accountability. Do not underestimate the power of a well-constructed church budget.
Because a church budget is so important, it requires a good plan – and that takes time. The amount of time spent is up to each church; the key is to follow a solid strategy. Churches that lack a budget-building strategy should consider the following 5-step plan that walks a church of any size through the steps of building a thoughtful, prayerful, and meaningful church budget.
The Plan
Step 1: Cast Vision for the Upcoming Fiscal Year
In a recent Carey Nieuwhof post, he provided the most succinct definitions of mission and vision I’ve ever read – mission is what you do, and vision is what you see. The church’s mission is unlikely to change from year to year; however, each year, the church may have a specific focus, goal, or initiative to accomplish. It’s imperative that the church budget reflect and support these goals and initiatives. Schedule a kick-off budget meeting to share this vision and promote collaboration. Encourage the stakeholders to dream forward and pray about how God calls their specific area to participate in these goals.
Pro Tip: This is an excellent time to provide those building their portion of the church budget with a history of expenses. At least a 12-month history of expenses allows leaders to know what ongoing expenses they can expect for the upcoming year and start building a financial plan to achieve the new initiatives.
Step 2: Determine Projected Income Target
While all steps are important in the budgeting process, accurately projecting the income for the upcoming year is critical. The projected income amount isn’t a wish; don’t make up a number to match all the church’s needs, wants, and dreams. The projected income is a number based on actual attendance and giving data. Overstating the projected income leads to overspending and possible financial hardship for the church. Conversely, understating the projected income limits the church’s ability to pursue its mission and vision for the year. There’s a simple formula for churches looking to calculate their project donations. Start with the total giving for the previous 12 months. Then, using the last 12 months of adult attendance, determine the growth or reduction factor of attendance. Finally, multiply the donation total by the growth/reduction factor. (Church Budgeting Session 102 covers this process in detail.)
Pro Tip: There is no such thing as a perfect formula. The church needs to monitor the progress of the donation projection every quarter and adjust accordingly.
Step 3: Compare Budgets to Projected Donation Target
With the vision in mind, the ministry and operation leaders used the historical data to build the budget for their area(s). When complete, these individual budgets are compiled and compared to the projected donation target. Typically, the submitted budgets exceed the projection; having dreams more significant cost than the budget is normal and healthy. However, reducing the individual budgets requires leadership committed to the mission and the vision. Churches are never short on good ways to accomplish God’s purposes in the budget; this step refines them to the best ways. This process may take several iterations to align the budgets and the income.
Pro Tip: When budget items are reduced or removed from the budget, the church cannot hold the leader responsible for achieving the goals set without providing adequate resources to accomplish the goal.
Step 4: Refine and Finalize
After all the individual budget revisions are complete, it’s time to compile and make any final minor adjustments. During the budgeting process, the church uses estimates for annual fees like worker’s compensation and health or commercial insurance until the renewals are final. This step utilizes as many actual numbers as possible to ensure the budget is as accurate as possible. When complete, send the budget to the church’s approving authorities for final approval.
Pro Tip: Provide a finalized copy of the church budget to all stakeholders for review before sending it to the church’s approving authorities, assuring buy-in and agreement.
Step 5: Distribute the Budget
Step 5 is the celebratory step; it’s when the church sees the fruit of all the labor and how God will work in and through the church in the upcoming year. Do not shortchange this step; be creative in how the church distributes the budget. Have a church business meeting or vision casting Sunday to share the plans and how their donations fund God’s work. Put a link to an abbreviated version of the budget for members to download.
Pro Tip: Do not share personal information, such as individual compensation and insurance information, and be sensitive to the supported missionaries as well.
Whenever your church’s fiscal year begins and whatever the timeline your church chooses to follow, be sure to have a church budget plan based on the vision for the upcoming year with an accurate income projection. With those foundational elements in place, leaders are free to dream forward and build their budgets. Using the church’s mission, vision, and values, compare the budgets to the projected income and refine them until they align. Then, share all that you expect God to do in and through your church in the upcoming year. It’s a cause for celebration.
short url:
