Budgets and finances in ministry can be topics that make people’s eyes glaze over. It can feel cold and removed from the missional work. Despite those overwhelming or confusing feelings, strong financial planning and oversight are critical to your ministry’s success and longevity. Beyond the basics of church finance, there are three nuggets of wisdom I believe you will find helpful as you lead in ministry.
1. Use It or Lose It/Flat Amount Budgeting
Many organizations -and churches are no exception- practice use-it-or-lose-it budgeting. When we plug in an estimated dollar amount for each line item in the budget, the funds are as good as spent. This works just fine for utilities, payroll, or anything else that is easily calculated and recurring every month. Churches misstep with more discretionary spending such as ministry budgets, equipment, repairs, and maintenance. Oftentimes, where these line items have someone else who is responsible for spending that money, they see the dollar amount and find a way to spend every penny (sometimes without as much thought and strategy as we’d hoped). In many ways, it is human nature to fully utilize the resources allocated to your budgeted line item. Typically, it is in fear that next year’s budget will be smaller if you don’t.
Let me encourage you to be more intentional with your budgeting process. Sit down with each person and have them “pitch” to you what their budget requests and needs are for the following year. Look to see that they have a detailed plan. Make some difficult decisions as to which areas of ministry get what amounts of money (based on your church’s values and missional goals). During the year, if it looks like someone might end up with extra at year-end, look to see if there is another department with an opportunity to best spend the money. Don’t just let that team member find a way to spend it all. Likewise, don’t punish them for being honest with you and allowing their budget to be reallocated to another department by automatically reducing their budget next year. Give them the same opportunity to make their requests again in the next budget cycle.
2. Have More Than One Person Capable of Handling Finances
Churches get into trouble when only one person handles the finances. One way this can bite you is from a fraud perspective. For good reason, this scares all CPAs and auditors since the most common and frequent fraud takes place when there is only one person handling the money.
A common fraud tactic is the use of a bogus vendor:
A bookkeeper sets up a vendor under a fictitious name, such as “ABC Inspection Co.” They begin writing checks to this fictitious vendor and take those checks to their bank, depositing them into their own account (which they opened).
It happens all too often.
In the church world, we sometimes feel uncomfortable setting up checks and balances when it comes to financial fraud because we feel like we are questioning that bookkeeper’s integrity. Let me stop you right there and say it is in everyone’s best interest, including the bookkeepers, to have checks and balances in place. At a minimum, have another person trained in the church’s bookkeeping and have that person randomly handle a week (or a month’s worth) of transactions. This is where fraud will often rear its ugly head. Best of all, knowing this swap of duties will happen at some point (and at random), keeps bookkeepers honest.
Another less frightening defense of having multiple people handling the church’s books answers the question: what happens if the main bookkeeper gets sick or, for other reasons, cannot work/help? The church’s finances cannot shut down. You need redundancy for emergencies and other unforeseen circumstances.
Budgets are great, but they are really the starting point for tracking a new year’s finances. It is just as important to forecast where your budget will land at the end of the year, and that process starts immediately. Depending on the size and complexity of your church, it may just be a document that you keep with all of the deviations from your budget you have incurred or expect to incur, or it may be kept in a spreadsheet. Either way, you should always have a pulse on where you see your church ending up as you begin to collect real data (as opposed to your budget, which, simply put, is an estimate). Year-end results should be no surprise to you.
- Is tithing significantly up or down? Put that on the list.
- Unexpected hire or termination? Put that on the list.
- A surprise increase in utility rates? Put that on the list.
Then, keep a monthly running total of all the deviations from your budget. You’ll be shocked at how close you are each month and as you get closer to year-end. Not only is this helpful for the current year, but it’ll also help you when you start making your budget for next year!
A Final Word
As you enter 2024, I encourage you to find ways to improve your church’s financial health as you seek to accomplish the mission that the Lord has placed on your heart. And if there is any way we can help, please do not hesitate to reach out.