Creating a Strategic Plan for Your Church Finances

The How-To Guide For Creating An Effective Financial Strategy For Your Church

Forward

The landscape in America has changed drastically over the past half century, and how churches respond is a question largely unanswered. There are approximately as many churches being planted as closing down each year. Yet the number of people who claim no religious affiliation continues to increase with each new survey of the American public.

For small churches, one of the major reasons they end up closing their doors is finances. Like it or not, planting a church requires some cash and good stewardship of those resources across time if these burgeoning congregations are to prove sustainable.

In my work with Church Community Builder, I lead a peer-to-peer learning community where pastors from all over the country, across multiple denominations and a myriad of church sizes, gather to discuss the most pressing issues they encounter.

What I’ve observed is that while each church has a unique calling, they all face similar challenges. Some of the obstacles for small churches and new plants are ones others learned to overcome the hard way. Their experience can be collected and shared so others following a similar path do not make the same mistakes.

This resource helps you avoid those mistakes while creating a clear plan for church finances. Based on decades of experience and practical wisdom, this guide shows you the path your church should take in order to avoid common pitfalls.

If we want to shift the statistics of church planting in the next decade, church leaders need proficiency in foundational principles, like how to be stewards of the financial resources God gives them.

Jesus described in the parable of the talents the steward who was responsible with a small amount. That steward was praised equally with the one who managed many talents.

It is not the numbers in our budgets or the sizes of our congregations that matter in God’s eyes; it is our faithful stewardship of what we are given — and that is why this guide is a must read for all pastors, especially those who lead small congregations.

“Do not despise these small beginnings, for the Lord rejoices to see the work begin….” —Zechariah 4:10 (NLT)

-Sean Buchanan, Church Plant Specialist, Church Community Builder

Introduction

The Gain Will Be Worth The Pain

This guide gives you solid principles and practices for tying ministry planning to budgeting and financial communication.

The better your planning process, the better and more effective your budget will be. As you work through this process over the next few years, you see how easy it becomes to learn and trust a path leading to greater ministry effectiveness. As you grow, it helps your church create scalable, efficient processes.

A healthy planning and budgeting process improves alignment to your mission, vision, and values while keeping ministry efforts integrated. If you begin to see silos in various ministry areas (or you’re already staring up at those silos), it’s a good indication your planning and budgeting approach is in need of major change.

Like any new effort, this plan requires some pretty intense efforts up front, but the benefits are worth the short-term pain of learning a new way to think.

As you read this guide, realize not everything applies to your church. But nothing offered here is coming from theory. Everything has been tried, used, and validated many times over in hundreds of churches. If you’re ready to lead a healthier, more effective church, then let’s start with a better budget plan.

Chapter 1

Why create a church budget?

Summary:

  • A budget is a financial plan for your ministry plan.

  • If you have a process that engages your team in meaningful discussions about where you are headed as a church over the next year and why, your team feels invited into the process.

  • As a leader, it’s your job to take these principles and apply them to your church setting.

  • The benefits to a solid planning and budgeting process vastly outweigh any early struggles.

  • A budget process isn’t about numbers on a spreadsheet. It’s about wisely using what you have to reach more people and fulfill God’s calling in your church.

If your staff and volunteers look panicked when they hear the word “budget,” you’re not alone. Most people don’t get into ministry because they like money management and budgeting. Most of them probably think a spreadsheet is equivalent to the eleventh plague. And most simply aren’t trained on how to effectively manage the complex finances of a church. In order to avoid fear of the “b” word, let’s define what a budget actually is.

“A financial plan for your ministry plan.”

If you have a process that engages your team in meaningful discussions about where you are headed as a church over the next year and why, your team feels invited into the process. If you’re all in agreement about where you believe God wants your church to go, having a budget that matches those goals creates momentum—not confusion.

Every church has a unique culture with unique values. When approaching ministry plans or financial plans, it’s tempting to copy and paste exactly what another church does. Instead of applying the principles, some make the mistake of applying the specific practices.

As a leader, it’s your job to take these principles and apply them to your church setting. This should always be done prayerfully and carefully, asking God to help you apply His principles for stewardship to the people you lead.

Once you decide to move forward with a new budgeting process, you may experience early challenges. But the benefits to a solid planning and budgeting process vastly outweigh any early struggles. Over time, expect:

  • Greater trust between leaders and givers
  • More ownership of the process church-wide
  • Deeper accountability for spending decisions
  • More connected ministry efforts
  • Timely, accurate, and appropriate financial communication
  • Better decision making
  • A process that grows as you do
  • Shared responsibility for good stewardship practices
  • A process that will leverage the strengths of various team members
  • True stewardship of all ministry opportunities (not just handling money)

When resources are the tightest, a budget process is the most critical.

A budget process isn’t about numbers on a spreadsheet. It’s about wisely using what you have to reach more people and fulfill God’s calling in your church. The habits and disciplines of this budget process spill into other areas of your leadership, creating more momentum to carry the mission forward.

Chapter 2

Benefits of a Good Budget Process

Summary:

  • A good budget planning process opens the door to so many critical conversations.

  • A good budget creates accountability.

  • A solid planning and budget process provides you with an ongoing reporting tool that builds trust with your team, volunteers, and members.

  • Building and refining a solid, integrated planning and budgeting process helps you scale as the ministry grows.

  • Integrated planning and budgeting streamlines the approval process and spending decisions.

  • How you budget, spend, and report money is merely a part of a much larger process.

Because the word “budget” is so scary to people, we need to shift our perspective. As we mentioned in the last chapter, it’s not just about dollars and spreadsheets. It’s not about making people feel constrained. And it’s not about saying no more often than yes.

A good budget planning process opens the door to so many critical conversations. Along with aligning teams and clarifying vision, it also has an enormous impact on the culture of your church.

Budgets Create Accountability

First, a good budget creates accountability. The word “accountability” sounds a little scary at first. People conjure up images of someone looking over their shoulder ready to smack their hand with a ruler if they do something wrong.

Instead, think of accountability as a cornerstone to a solid church foundation. Developing staff and volunteer accountability has positive implications well beyond financial management. If you set proper expectations and provide timely feedback around financial management, you develop leaders (and they may not even realize it!).

“Leadership development” is listed as a common issue churches need to address. While most leaders see the importance of developing leaders, very few take advantage of tasks such as budgeting and financial management as a path to developing better leaders.

Ministry was never meant to be a spectator sport where we pay staff to “play the game” while we sit on the sidelines and cheer them on.

When you ask people to plan, budget, and manage finances and other resources wisely, you need to do a couple of things.

  • First, involve them in ministry planning. Your planning process should be structured so every team member knows the overall direction and priorities for the year.
  • Second, they need to know and understand how their area fits within the overall focus. They need to know exactly what budget line items they are responsible for and what goes into those line items.

One common challenge is the plethora of “shared” line items in their list of accounts. One example could be a line item entitled “Kitchen.” Here’s the problem: every ministry shared this one. The youth pizza orders were in there, as were the women’s ministry monthly luncheons and the men’s breakfast gatherings.

When the “Kitchen” line item went over budget, no one knew what expenses pushed it over the line. Worse, no one wasaccountable for those funds. Since there was no accountability, no one owned it. If you can’t put one person’s name to each line item, you will never be able to grow the kind of accountability that will ultimately produce the most benefits possible.

Budgets Should Build Trust

Along with accountability, a solid planning and budget process provides you with an ongoing reporting tool. This doesn’t happen automatically, but if you build a solid budget and structure it correctly, you can report to others on a very regular basis.

Financial reporting needs to be done regularly and with very accurate information, and your financial reports should be tailored to your various audiences.

As you begin to report appropriate, timely, and accurate financial information, something really interesting will happen. You’ll build trust at every level.

People tend to get uncomfortable with talking about money, no matter the context. Whether it’s not sharing their salary, hiding their debt from friends, or not trusting how someone else uses their money, the very topic of finances tends to create distrust.

This is especially true when it comes to churches and finances. Too many people associate the stories of fraud and opulence with all churches. As a result, they lean toward pessimism on the issue.

As a leader, recognize this reality. Leverage the good financial reporting you create to generate trust and transparency among your people.

Good planning, budgeting, and financial communication grow trust (and generosity) at every level.

Another benefit to building and refining a solid, integrated planning and budgeting process is it helps you scale as your ministry grows. When you add staff and assign them areas of responsibility, they also take over the budget for those areas.

Instead of one or two people trying to steward your financial resources, several people share the task. They also become additional sets of eyes to review the details of charges and payments to make sure the church actually got what you paid for.

This sounds simple; however, as you grow, this kind of validation becomes tricky. If your financial secretary codes and sends a bill to be paid by your bookkeeper, no one can verify that you actually owed that money or received the goods or services being paid for.

If every staff person is watching their own budget, they are keenly aware of unauthorized or inaccurate charges.

Finances Are Key For Leadership

Leaders need timely, accurate financial information as a key area of their leadership. Your 501(c)3 status means the IRS expects your board to assume basic obligations and fiduciary responsibilities. The board should regularly review financial reports to be certain the church’s books and finances are in good order.

The actual work of managing finances can be delegated, but fiduciary oversight can’t be.

Another benefit to building and refining a solid, integrated planning and budgeting process is it helps you scale as your ministry grows. When you add staff and assign them areas of responsibility, they also take over the budget for those areas.

As Harry Truman taught us, the buck has to stop somewhere—and it’s with your board. Your board should regularly receive a balance sheet, an income statement, and a budget versus actual report for each month and for a year-to-date summary.

Likewise, if a staff person or volunteer leader doesn’t know if they have the resources to spend in their ministry area, they miss ministry opportunities that could have really made an impact. Information is a key component to good decision-making, and if your financial system is built to provide that, you will help everyone maximize your overall ministry impact.

Structure For Simplicity

Integrated planning and budgeting streamlines the approval process and spending decisions. Too many churches create bottlenecks here.

A good principle is to push authority and decision-making down the org chart whenever possible. If you’ve done a good job of planning and budgeting, why not let those responsible for those ministry areas and corresponding budget line items use their budgets as they’ve been planned?

Guidelines for spending should be put into place and everyone should be required to follow the purchasing guidelines.

Things like:

  • Pursue competitive pricing
  • Get bids on larger items
  • Don’t favor friends or family when it comes to purchases

If you are intentional and inclusive in your planning and budgeting, you create pre-approved spending. This empowers staff and volunteer leaders to execute the agreed upon plan, including spending the money approved in their budget areas.

This goes beyond how you handle money. It’s about improving how you use all of your God-given resources.

As you implement these ideas, you become more mindful of:

  • How you steward ministry opportunities
  • Your human resources in terms of staff and volunteers
  • Everything that comes across your path

How you budget, spend, and report money is merely a part of a much larger process.

Chapter 3

Budget Building: Skeleton First

Summary:

  • Begin with the end in mind. Think through what you will need in the ministry years to come and what will best serve you now.

  • Be sure your bookkeeping is being done on an accrual basis, not on a cash basis.

  • Use the five major budget headers for a high-level summary report to share with anyone in your congregation. Run a budget versus actual report to show people where you are on a regular basis.

  • When it comes to accurate planning and budgeting, details are your friend.

  • A critical component of good budgets: use language that fits your church.

Steven Covey famously tells his readers to “begin with the end in mind.” That’s exactly what we’re going to do now—think through what you will need in the ministry years to come and what will best serve you now. Once you know that, it helps you be a better communicator.

Many leaders think there are only two ways to communicate financial information to people:

  • Stand up on Sunday morning and share the same information with everyone.
  • Call a special meeting to deliver a financial report and then open up the fire hose of information at anyone brave or inquisitive enough to show up.

Both of these methods fail to communicate timely, accurate, and appropriate financial information. If you don’t maximize these opportunities, you miss out on the benefits of an effective planning and budgeting process. Clear communication around finances is critical to a growing ministry, and your church will not be as effective without it.

So why begin a chapter on budget structure by talking about communication? If you structure your budget correctly, you will be able to expand and contract the level of detail based on the needs of each audience.

The right structure also grows with you. If you already plan to be a multisite church someday, why not structure your bookkeeping now so campuses can be added over time?

Bookkeeping Done Right

Be sure your bookkeeping is being done on an accrual basis, not on a cash basis. Many churches practice cash accounting, which prevents leaders from viewing upcoming obligations and possibly cause bad spending decisions. It’s like turning off the headlights of your church finance vehicle on a dark night.

To help make this clearer, look at a sample budget structure in Appendix 1.

As you look at this template, remember it needs to fit who you are as a ministry and meet your specific needs.

When building out your budget, create headers that can be collapsed down to the five major categories for a high-level summary report to share with anyone in your congregation. If you roll your reporting up to this level, run a budget versus actual report to show people where you are on a regular basis.

Don’t make the mistake of sharing too much detail with people who don’t want or need it. The problem is, if you don’t report something, many people will fill the information vacuum with suspicion instead of trust.

Appendix 1

Break It Down

The budget skeleton is now ready to be built out with additional categories. Take a look at Ministries: Children in Appendix 1. You’ll want to include major events and activities in Children’s Ministry so it would look like this:

  • Ministries: Children
  • Ministries: Children VBS
  • Ministries: Children Fall Festival
  • Ministries: Children Volunteer appreciation

See what happened? The children’s budget was broken down to another level of detail. All of these would have budget dollars attached to them that roll up to the next level.

One helpful tactic is to put common items in each ministry area. Instead of a budget category of “Kitchen,” put a “Food” line item in each ministry area so each staff member can track their spending and be held accountable for what is under their control.

All budgeting still rolls up to these five main categories, which helps you report appropriately to every audience. The finance team and staff leadership get all of the details. Everyone else gets the summary level reports.

Appendix 1

Love The Specifics

The last level of detail that can be added to totally build out our budget would be things we want to track for future reference but not specifically budget for. That looks like this:

  • Ministries: Children
  • Ministries: Children VBS
  • Ministries: Children Fall Festival
  • Candy
  • Decorations
  • Bounce house
  • Ministries: Children Volunteer appreciation
  • Catering
  • Childcare
  • Entertainment

Why add these details? They give you a way to explain where the budgeted money went. It also provides good history for future planning. For example, a Children’s Pastor may ask what was spent last year on tent rental for VBS, or a Youth Pastor might ask what it cost for a bus company to drive 65 middle school youth to summer camp.

When it comes to accurate planning and budgeting, details are your friend.

Often churches don’t nest these expenses under budgeted categories. If your budget structure just adds a line item for every expense, you’ll soon have financial reports that feel like novels. And they’re novels no one will ever read, like the ones you didn’t finish in high school English.

Build your budget from the skeleton first. Add meaningful details and use it as a tool for reporting, planning, and appropriate communication.

Use Your Own Language

One more step in your budget planning: use language that fits your church. Don’t “borrow” someone else’s budget categories and try to fit their ministries into your format. It’s like the stepsisters trying to jam their feet into Cinderella’s slipper.

Use the language your church uses. Call ministries in your budget by the names your church uses. It sounds basic, but often a well-meaning CPA or other financial professional may help a church build a chart of accounts and budget template full of irrelevant categories and labels no one understands.

Remember, if you are going to scale efficiently and use your budget as a communication tool, it must speak your language. If people have trouble accurately coding expenditures, your bookkeeping will be inaccurate and the history you’re building won’t help long term. You also impede your staff’s ability to review charges and catch errors.

Chapter 4

Budget Building: The Process in Detail

Summary:

  • Many churches have a formal planning process. Yet the depth, frequency, and effectiveness vary greatly.

  • If you struggle to clarify and communicate vision, seek help. It’s critical for a more effective budget process.

  • Vision asks and answers the question: “How will we put feet to our mission over the next several years?”

  • Knowing what you’re going to do together gives you permission to steward resources and narrow your focus.

  • Annual ministry planning is critical for your church to be more effective.

  • Shift your fiscal year to match your calendar year so ministries can plan better.

Many churches have a formal planning process. Yet the depth, frequency, and effectiveness vary greatly.

Before we start, picture a visiting pastor named Steve walking into your church on a Sunday morning. He asks any of your regular attendees what makes your church unique or special. Most would say similar things. Likewise, most of your attendees should know generally what your focus is or what you’re trying to accomplish together. This should be even more true of your staff and leaders. If this kind of shared vision of who you are and where you’re going is lacking, it is nearly impossible to create true ministry alignment.

Planning Starts With Vision

“If you want to build a ship, don’t drum up the men to gather wood, divide the work, and give orders. Instead, teach them to yearn for the vast and endless sea.” —Antoine de Saint Exupery

This guide isn’t about a visioning process. But if you struggle to create and cast a compelling vision, seek help here. You will never reach your full potential without it.

Every five years or so, do some re-visioning work. Vision asks and answers the question:

“How will we put feet to our mission over the next several years?”

Vision work can be painful for some, but it’s the best way to keep your whole church focused and unified. An effective visioning process:

  • Involves everyone in the church
  • Is time bound with deadlines
  • Is well facilitated so it produces maximum results
  • Includes a memorable Rally Cry that everyone can remember and get behind

A compelling new vision must be coupled with an equally compelling communication plan. Communication is hard work, especially when you’re trying to embed concepts deeply into the fabric of your entire church, but it’s essential.

Plan The Strategy

The next type of planning that should be done is often referred to as strategic planning. Every church needs to look at what they are doing every two to three years, set some clear priorities, and then execute on them.

Knowing what you’re going to do together gives you permission to steward resources and narrow your focus.

Knowing what your priorities are will also help you say “no” to the right things.

Churches are notorious for trying to do too much. It’s easy to add programs and initiatives but hard to eliminate them. Many leaders and followers grow weary of this kind of strategic planning and direction setting—not because they don’t believe in the direction, but because many churches never follow through and execute on the plan.

Plan The Year

That brings us to the next step—annual ministry planning.

Staff and key volunteers charged with planning and executing ministry must know the overall priorities for the coming year. Without priorities being clearly stated and understood, you’re in danger of two things:

  1. You create ministry silos.
  2. You defuse resources and lose momentum.

Without a clear, compelling set of priorities for the coming ministry year, each staff person defaults to what they know. They do what they think is best since it comes from a place of familiarity. If they don’t have a firm grasp of your whole church’s guiding priorities, they create plans to help their own ministry area succeed without realizing how those plans affect what others are doing.

This siloed approach decouples ministry areas from each other, which destroys any chance at integration. Before you know it, your Women’s Ministry plans a weekend retreat the same weekend the Children’s Ministry tries to invite friends to church.

In case you missed it, children’s attendance is way down the same weekend the women are gone. The women’s leadership has inadvertently torpedoed the children’s leaders initiative, and it will cause problems.

It might seem like an honest mistake—and it is. But if that behavior is repeated across all ministry areas for long enough, you get minimal results with way too much complexity and too high of a cost. (This isn’t unique to churches, by the way—this happens in business and other organizations as well at a high cost of wasting energy and resources.)

If you lack clear priorities, you waste resources and miss opportunities.

When your staff and volunteer leaders all go their own way, they:

  • Spend more money
  • Use more volunteers
  • Force leaders to break ties and manage activity instead of results

If this goes on long enough, your best staff and leaders leave and you’ll see a decrease in giving by people who give to vision. (More on that in Chapter 6.)

There’s a better way to do your ministry planning and budget work. Most churches plan ministry to start in September and end the following summer, which is solid thinking since this is how our people tend to behave.

But many churches run their budget year to match the calendar year. Consider changing to a fiscal year that matches your actual ministry year.

If you decide not to go to a fiscal year, you can still follow this process, but just know that the further out you’re considering, the harder it will be to forecast.

Choose a time to launch planning when you can give it focus and attention. Here’s a more detailed look at how that happens throughout the year:

Weekly Updates

Ask your senior leadership team to deliver clear ministry priorities for the next ministry year to the staff by the end of March. These priorities should be compelling and get your teams excited about what you achieve together.

Plan in April

Ask each staff team to meet with their key volunteers (in light of these stated priorities) and plan what they would like to do in each ministry area, with specific actions in specific seasons.

  • Example: The Middle School Youth Group will go on a retreat in July so the upcoming 6th graders can get to know the leaders and older students quickly. The retreat will be held at Camp Running Bear and we anticipate about 85 students and eight leaders. This level of planning should be done by mid-April. It is tied to overall priorities; so if leadership has decided that the church needs to focus on evangelism over the next year, this might have an outreach element to it.

Pull together all annual planning details into one document. Review it with senior leadership. Look for alignment to the overall direction and priorities of the church, and integration within each ministry area. An integrated plan doesn’t allow major activities to happen in two or more ministry areas at the same time. Look for gaps as well as activities that may be out of alignment. Ask ministry areas to refine their plan with this new feedback by the end of April.

Budget in May

After senior leadership is confident that the plan accomplishes the right things (and doesn’t include the wrong things), ask staff or key volunteers to go back and estimate what it costs to accomplish their plan. Provide them with as much financial history as you can for a starting point. As these cost estimates come in, add them to a budget worksheet/spreadsheet. Look for gaps or large increases and be sure there are no glaring errors. This should be done in early May.

Based on Zero

Many churches find zero-based budgeting to be the right fit for their organization. Zero-based budgeting means it doesn’t matter what was spent on a ministry area last year. Every area needs to be funded according to the best current estimates.

Leadership also needs the ability to allocate funds each year for bold new initiatives. This is not possible if you allow silos to develop and ministry areas get protective of budget dollars. In this model, everyone is an equal partner in stewarding the resources God gives you.

If you have stated that a clear priority for the next ministry year is to help at-risk kids in your community and no dollars follow that initiative, it is not a priority. It’s a wish.

  • Meet with your finance team or committee and ask them to review finances year-to-date. See how you are doing on the income side, where you’re within budget, and which areas are over budget. Be sure everyone knows what is causing both.
  • Ask the team to set a range for the next year’s budget. Try not to get an exact number, as groups work best giving ranges. Ask them to project a range that they think income should fall within. Be conservative when projecting income.

You can’t project a large increase in income without having a reason for it. These conversations with the finance team should be done at the same time the staff does ministry planning.

This projected income range should be provided by the finance team to staff leadership so it’s ready to plug into your first budget draft.

  • Add the budget amounts that you control internally. This includes things like money for cash reserves, savings for capital improvements, and accruals for long-term needs like a new roof. Sometimes ministry opportunities come up no one planned for, and it would be a shame to say “no” simply because it’s not in the budget. Add this information to your draft budget spreadsheet.
  • Initiate discussions with your senior leadership team around any new staff needs. Do your homework on what this position will cost and when they might come onboard. If you’re not adding new staff, you might be increasing someone’s hours or changing them from part-time to full-time. Also, work with your personnel team to determine any staff compensation adjustments for the coming year. Don’t forget to review and project for benefit cost adjustments and other staff-related expenditures. This work should be done early enough to include in your first budget draft.
  • Review total budgeted expenses and compare it to the income range the finance team recommended. How does it look? One of three things will be true:
    • You’ll be within the recommended income range (this almost never happens).
    • Expense projections will be higher than the income range (this is more normal).
    • Expense projections will be lower than the income range.

This seems like a positive outcome, but more likely means that you are not aggressive enough in challenging staff to take on a bold plan for the next year.

  • Take your budget draft to your senior ministry leadership. Review it together with the ministry plans. If expense projections are too high, find things in the plans that can be cut back or postponed for another year. Don’t just make budget cuts. You can’t ask your team to keep the annual plan intact but cut their funding. If you have to cut a budgeted item, take it out of their plan so they know that they are not expected to deliver something without the resources to carry it out.

Be Realistic

Continue this exercise until the expense projection side of the budget is in line with the income projection range. A word of caution: don’t simply make up the difference by increasing your budget projection for income. That’s not how you solve the shortfall. It will only lead to having to spend less on things you already promised.

This is much more painful than cutting it during planning because once it hits the final budget, it feels more like a promise. If you routinely put items in the final budget that are later cut, your team will begin to distrust the process.

You may be tempted to cut cash reserves, accruals, and capital expenditures, but over time, this catches up with you. All of these show up down the road with a higher price to pay.

Discipline is critical here. If you are within your income range, have a thorough review with your senior leadership team so everyone knows the budget and plan work together well. You’re all going to own and champion this budget together as your best thinking and planning. Get comfortable with it.

If income projections are higher than your team thinks they need (which isn’t likely), go back and be sure senior leaders are challenging everyone to create as much ministry impact as possible.

Prepare the Draft

Update the priorities and increase the challenge appropriately. Send the plans back and ask the team to resubmit them after the new challenge. Repeat the budget work for any new initiatives and roll them back up until you are comfortable that everything matches.

  • By mid to late May, you should be ready to take the budget draft to your finance team. They will be delighted to see the total projected budget increase is within the range they gave you! Go over it with them area by area. Allow them time to ask questions and make observations. As questions arise, use the annual plan draft to provide rationale for requests. This helps you catch potential gaps or errors. More importantly, it helps give your finance team confidence the plan is solid. Their buy-in is critical if members of the church come to them with questions or concerns.

Remember growing trust at every level will benefit the church immensely

  • Once the finance team reviews the budget with you, bring your annual plan details back to your staff team. Ask the staff to share any concerns they have with anyone else’s plan. Be sure the ministry team knows and understands why various activities are planned. Everyone needs to be a champion for everyone else’s area. This work should be done in early June.
  • Bring the annual plan draft with the budget to your board for approval. Be sure they have time to hear highlights of what is planned and why. Review the budget along with the steps that have been taken. They will be happy the budget increase is within the range set by the finance team.
  • Share the approved budget with the staff team so they can confirm what they have to work with during the next ministry year. This gives your staff time to begin detailed planning for fall.
  • Review processes and communicate compensation with your staff for the new fiscal year in July.

Cast Vision, Communicate Budget

With your budget draft in place, it’s time to bring it before the church. Be sure to communicate that the budget has been approved for the new ministry year and provide copies for those who want them. The reports should be summary budgets that include all of your major expense categories and should always fit on one page. This should be done just ahead of or the first weekend of the new fiscal year.

This final step is a leadership exercise, not just a financial one. When your staff, senior leadership, and volunteer leaders do their due diligence in planning, it shows. People in the congregation see the hard work done to prepare ambitious and realistic plans for their ministries.

As a result, trust is built. Your staff is empowered to lead their ministry and leverage their planned budgets in order to reach the community. In the end, your work for a budget actually produces an aligned, integrated church working together toward the bigger mission.

Chapter 5

Metrics, Ratios, & Best Practices

Summary:

  • Understanding best practices for church finances improves financial management.

  • If you proactively prepare for the people God sends your way, debt might be the only way to be ready.

  • One helpful metric shows how much debt they’re carrying per active giving unit.

  • As you plan for facility expansion, plan for an aggressive debt retirement strategy.

  • Planning for cash reserve is critical to long-term ministry health.

Understanding best practices for church finances improves financial management. There’s a disclaimer though with these practices and ranges. While these may be the norm, it’s possible for some churches to operate outside normal ranges. In fact, you’ll find seasons in your church’s life when it will be impossible to be within what we would call a normal range.

For example:

  • If you’re a church plant, or in early stages of startup, most of your total income is spent in a few areas like staff and facility costs.
  • A church that moves into a new facility or is located in an expensive real estate market might have higher than normal facility costs. The key is to know why this is and that it might mean sacrificing in other areas.

If you proactively prepare for the people God sends your way, debt might be the only way to be ready. The problem is growing churches need major facility expansions every five to seven years.

Unfortunately, most lenders calculate loans that are amortized over 20 to 25 years. So church leaders plan to pay off the original loan over that 20 to 25 year timeframe. If the church continues growing, another loan is needed much sooner.

Leaders then start rolling debt up into the new loan. You may well be able to handle the monthly loan payment for a while, but eventually it creates problems.

Foundational Metrics

One helpful metric shows how much debt they’re carrying per active giving unit. This includes calculating the dollars given per active giving unit. Debt looks different when you realize every active giving unit is responsible for a debt load four or five times their annual giving amount.

Unfortunately, many churches find themselves in this situation after multiple building projects, creating a heavy debt load. If you see more than 15%-20% of your total budget going to debt, you’re headed toward a challenging path.

There’s a better alternative to building a debt snowball. As you plan for facility expansion, plan for an aggressive debt retirement strategy. Put a plan in place that totally eliminates building debt in about seven years.

This means if you continue to grow, you can afford to build again. If your rate of growth slows, you will not be a slave to debt. Your church will still be able to serve people without sacrificing ministry decisions because of a mortgage payment.

You Need Cash Reserves

That might seem like a no-brainer, but one of the biggest challenges churches deal with is insufficient cash reserves. A lack of understanding around the role reserves play in your overall financial health leads to poor or no planning.

Having healthy cash reserves helps in many ways. Shortfalls in cash flow happen seasonally at most churches. In fact, while up to 90% of your budget will be spent pretty equally each month, your income does not match that reality. Most churches have low and high giving months.

If you have to postpone or cancel ministry activities because of tight cash flow, you do damage on several fronts. You lose all the planning and leadership effort that went into the activities and lose momentum with people. All of this can be avoided if you develop and follow a cash reserve policy.

See That it Gets Done, but Don’t Do It

Finally, outsource whatever you can. You’ve done the hard work of building a ministry plan and crafting the budget to support ministry goals. Now the grind begins: tracking expenses, managing budgets, and understanding cash flow.

It may be tempting to hire a full-time or part-time staff member to manage the books. For big churches with a mountain of work to manage in the finance department, these roles make sense.

But for the overwhelming majority of churches, hiring a staff member to manage finances may not make sense. Instead, look at an outsourcing partner. Small businesses outsource countless tasks like finances, making it easier to focus on their core business.

In the same way, outsourcing your church’s bookkeeping eliminates the time and attention needed by you and your staff. Your costs are significantly lower too, since you’re only paying for the work itself, not the added expenses associated with an employee.

Remember, you’re a church. Stay true to your core. Do what only you can do.

Chapter 6

Final Thoughts

Summary:

  • Many church leaders incorrectly assume they shouldn’t ask for or talk about money.

  • Asking for money happens best in the context of vision.

  • God does not give a vision that He will not fund.

Congratulations! You covered a lot of ground when it comes to creating a solid church budgeting process. Having a detailed plan is incomplete without a budget that parallels it.

Many churches don’t do an effective job of casting vision and connecting it to giving. Many pastors and church leaders are afraid to present a need because they believe people ditched church because of a focus on money. This flawed perception causes many to not ask for money at all; if they do ask, it’s an ambiguous request absent from the vision.

This guide is about budgeting, not fundraising. God does not give a vision that He will not fund. But it’s the responsibility of church leaders to communicate consistently to people and show how they can join the vision God has for your church.

Clear, compelling information about what God is calling your church to accomplish—coupled with a plan and budget that gets you there and appropriate, timely, and accurate reporting on progress—leads to increased giving.

People Fund Vision, Not Budgets

Standing in front of a congregation and telling them you are 7% behind budget won’t correct the giving shortfall. In fact, it could make it worse. But showing them the ministry opportunities you’re missing, the lives that are going untouched by God’s people, the hurting your church could be alleviating— people fund those things.

As we wrap up, let’s recap some of the most essential points in your budgeting and planning efforts.

Chapter 1
  • A budget is a financial plan for your ministry plan.
  • If you have a process that engages your team in meaningful discussions about where you are headed as a church over the next year and why, your team feels invited into the process.
  • As a leader, it’s your job to take these principles and apply them to your church setting.
  • The benefits to a solid planning and budgeting process vastly outweigh any early struggles.
  • A budget process isn’t about numbers on a spreadsheet. It’s about wisely using what you have to reach more people and fulfill God’s calling in your church.
Chapter 2
  • A good budget planning process opens the door to so many critical conversations.

  • A good budget creates accountability.

  • A solid planning and budget process provides you with an ongoing reporting tool that builds trust with your team, volunteers, and members.

  • Building and refining a solid, integrated planning and budgeting process helps you scale as the ministry grows.

  • Integrated planning and budgeting streamlines the approval process and spending decisions.

  • How you budget, spend, and report money is merely a part of a much larger process.

Chapter 3
  • Begin with the end in mind. Think through what you will need in the ministry years to come and what will best serve you now.
  • Be sure your bookkeeping is being done on an accrual basis, not on a cash basis.
  • Use the five major budget headers for a high-level summary report to share with anyone in your congregation. Run a budget versus actual report to show people where you are on a regular basis.
  • When it comes to accurate planning and budgeting, details are your friend.
  • A critical component of good budgets: use language that fits your church.
Chapter 4
  • Many churches have a formal planning process. Yet the depth, frequency, and effectiveness vary greatly.
  • If you struggle to clarify and communicate vision, seek help. It’s critical for a more effective budget process.
  • Vision asks and answers the question: “How will we put feet to our mission over the next several years?”
  • Knowing what you’re going to do together gives you permission to steward resources and narrow your focus.
  • Annual ministry planning is critical for your church to be more effective.
  • Shift your fiscal year to match your calendar year so ministries can plan better.
Chapter 5
  • Understanding best practices for church finances improves financial management.
  • If you proactively prepare for the people God sends your way, debt might be the only way to be ready.
  • One helpful metric shows how much debt they’re carrying per active giving unit.
  • As you plan for facility expansion, plan for an aggressive debt retirement strategy.
  • Planning for cash reserve is critical to long-term ministry health.

Money Should Build Unity

This guide focused on budget planning. By now, you realize it’s so much more. Yes, it starts with how we spend money as a church. But like anything else, being intentional about money requires a hard look at priorities, goals, and objectives.

When your staff and leaders do the work of preparing a budget together, they create alignment and integration across ministries. Instead of operating in silos, they work together toward common goals greater than any single department.

Many churches see budgets as a constraint, a tool used as a weapon to say no and limit ministry potential. This is both unhealthy and unhelpful. A budget is simply the final result of a long process of ministry and leadership development.

In the end, your team and your church become a powerful force operating in unity. Everyone works and focuses on the same goals of reaching people and sharing Jesus. Money was just a tool to get you there.

Conclusion

And They Served God Happily Ever After

A well-crafted budget process doesn’t guarantee smooth financial management for your church. But it does provide a solid foundation.

Like the fence around a playground, a solid budget should produce freedom for staff and leaders to spend money and execute ministry decisions, knowing they are on solid footing. A good budget process should increase collaboration, reflect collective priorities, and make scaling ministry easier.

If that’s not your current reality, use this guide as a checklist to see where you need to make changes. Every church goes through seasons of tight finances and limited resources. Good planning and budgeting won’t eliminate that. It will, though, keep everyone working together and allow you to maximize every dollar God gives you.

Appendix 1

Sample Budget Template

As you look at this template, remember it needs to fit who you are as a ministry and meet your specific needs:

I. Income

  • Income: Tithes and Offerings
  • Income: Investments
  •  Income: Other

II. Personnel

  • Personnel: Salaries
  • Personnel: Benefits
  • Personnel: Staff Expenses
  • Personnel: Continuing Education
  • Personnel: Payroll Services

III. Ministries

  • Ministries: Worship Arts
  • Ministries: Teaching/Preaching
  • Ministries: Youth
  • Ministries: Children
  • Ministries: Small Groups
  • Ministries: Women
  • Ministries: Men
  • Ministries: First Impressions/Welcome Ministry

IV. Operations

  • Operations: Office
  • Operations: Facility
  • Operations: Technology
  • Operations: Equipment

V. Outreach

  • Outreach: Local
  • Outreach: Global
  • Outreach: Evangelism

Remember, this is a very simple example designed to give you a picture of what you could do. When building out your budget, create headers that can be collapsed down to the five major categories for a high-level summary report to share with anyone in your congregation. If you roll your reporting up to this level, run a budget versus actual report to show people where you are on a regular basis.

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