Ingredient Four – Managing Your Cash

Monthly cash receipts seldom match what was budgeted and it is not unusual that during some months, cash outflow will exceed inflow. (Like July and August…)

Not preparing for this may force a church to:

  • Dip into savings or investment accounts
  • Pay bills late
  • Borrow money.
  • Dip into designated accounts (AKA – World War III!)

One way to avoid having to resort to these measures is using a monthly cash budget. This is a fairly simple process of developing a “budget within a budget”.  Using historical data:

  • Estimate the next month’s receipts
  • Estimate the next month’s expenses
  • Compare the net amount to cash on hand
  • Make adjustments as necessary based on the shortfall amount

Ingredient Three – Controlling Expenses

Even though we started with keeping an eye on receipts, most of the budget busts I have seen have been in this area.  Stories are legendary about ministers with little regard to the budget process and some of the budget bypassing techniques they employ can be quite creative.  Many of these situations I have helped churches work through if the church has simply understood this: A formal bill paying and approval system is a must!   

A strong bill-paying system must clearly document:

  • Who authorized the purchase of goods or services
  • Who received the goods and compared them to the original order
  • Who compares the invoice with the authorization?
  • Who prepared the check
  • Who signed the check
  • Who mailed the check
  • Who recorded the transaction in the general ledger


Ingredient Two – Keeping an Eye on Receipts

Tithes and offerings are the financial life-blood of a church.  Changes in the flow of a church’s resource stream need to be regularly monitored.  This is not something that is only to be done during the budget development process.  By waiting until then, it may be too late.  By keeping an eye on receipts, churches can move quickly to address shortfalls.

First thing is to make sure you are identifying all kinds of revenues such as:

  • Tithes and offerings
  • Service revenues (Day care, school, book store, etc.)
  • Special events
  • Investments/Endowments

Once this has been done the goal is to be on the alert for trends.  The earlier a church spots a new trend in giving, the easier it is for making mid-course corrections.  Just like driving a car, it is much safer to ease over into the next lane than jerking suddenly on the steering wheel!

Here are a few questions a church should ask in order to identify trends:

  • Is income increasing, decreasing, or plateaued?
  • Are a significant number of members joining or leaving the congregation?
  • How is the local economy doing?  Are any layoffs on the horizon?
  • What is the demographic make-up of your church?  What did it look like three years ago?

Ingredient One – A Strong Platform

A strong platform for managing the church budget begins with the chart of accounts.  For any non-accountants reading this, a chart of accounts is simply a list of the church’s general ledger accounts used to generate financial statements.  The accounts are listed according to where they appear in the church’s financial statements beginning with the balance sheet and running through the income statement.  The accounts as they appear in the church’s income statement should be an exact replica of the church budget.  Frequently this can be a problem with churches using financial software designed for businesses.  Because the financial statements generated by the software system look like a business, the church will resort to spread sheets to develop a budget.  Unfortunately, this makes mid-stream budget analysis difficult.

A financial reporting system that keeps the church truly informed is the next requirement.  A church should generate timely financial statements (usually monthly) that generate not only results of activities but also a meaningful budget vs. actual comparison.  To be meaningful, the budget must be broken down by month but NOT simply by dividing the annual budget into 12 equal amounts.  Annualize the budget by incorporating the natural trends in all accounting years.  (For example, receipts will be much higher in December than July…)  Also, hardly anyone does this but try to include designated/restricted gift activity in reports.  It’s perfectly permissible to budget for these types of gifts.   

Budget Administration

Now it is time to turn to our fourth and final category, budget administration.  It doesn’t matter how much time a church puts into budget development or even prayers for that matter, if plans are not put in place to administer the budget once it is implemented.  Not providing adequate oversight of budget administration is not much different from not having a budget at all.  In my opinion there are four key ingredients to making all of a church’s budget planning pay off.  Sufficient church budget administration includes:

  • Having a strong platform in place
  • Keeping an eye on cash receipts
  • Controlling spending
  • Managing  cash

Budget Development – Scheduling

Done correctly, budget planning is a time consuming process.  A church should not build the rocket as it is launched!  Effective budget planning starts well before the budget year begins.  The following is a suggested budget development schedule based on a March 31 year end.  Notice that the work begins six months before day one of the fiscal year being planned. 

  • September

Establish a calendar to chart the process

Review the church mission, vision and strategy

Develop ministry goals for the coming year

  • October

Project expected revenues, fixed or ongoing costs

Determine available funds

Distribute budget request packets to ministers/laity/teams charged with budget responsibilities

  • November

Completed budget requests returned to the budget development team

Requests are reviewed/approved

Preliminary budget developed

  • December


  • January

Final analysis of budget


  • February & March

Stewardship emphasis

  • April


Budget Development – Step Five

The purpose of step five is to make sure the church is on mission in its budget planning.  In step five the church takes one last look at its budget before moving into the implementation stage.  This should include a critical analysis of all budget requests submitted by ministerial and lay leaders confirming that the requests are within dollar amounts previously established and consistent with the church’s mission and vision for the next year. 

  • This should be done BEFORE the adoption and implementation of the budget.  To do otherwise would open the church to the discouragement and disillusionment we discussed in a previous post.  It is hard to undo this kind of damage…
  • However, it is a good practice to perform this step at mid-year to determine if realignment is necessary.  Budgets are not written in stone, they are to serve primarily as a guide.

A few of the questions that need to be addressed during this process are:

  • Are our numbers in alignment with our mission?
  • Are we balanced between in-reach/outreach?
  • Should any of these budget items no longer be funded? (Are they carrying out our vision/mission/strategy?)

Budget Development – Step Four

This may be the shortest post in the budget development discussion but it is the most important.  The purpose of step four is to allow church staff to PLAN WELL for the upcoming church year.  And, this will be impossible if the church does not COMMUNICATE well.

The allocation decisions must be clearly communicated to staff and lay leadership.  Knowing how much money is available for their area of responsibility:

  • Frees leadership to plan the current year
  • Allows them to submit realistic budget requests.

Budget Development – Step Three

Step three involves the allocation of the available funds to various church activities as determined by the mission of the church.  It must be stressed; there is no one way to do this because each church has its own specific calling and there is a wide array of ministry focus points among churches.  But, in my opinion, there is a universal truth – The best practice is to assign the task of allocation to a combination of staff/laity/committees/teams. Don’t leave it to a bunch of accountants on the finance committee…

The following is one process many churches employ:

  • Start with personnel costs.  In one sense, churches are in the “service industry”.  Like other service providing entities, payroll costs will normally be the largest budget allocation. Typically 50% of the budget will be allocated to salary and personnel costs.
  • Next come facilities costs, which include mortgage or rent payments, insurance, utilities and routine maintenance.  Historically, a healthy range has been 20 – 25% but in recent years, due to the economic slowdown, churches have been exploring alternate ways to provide meeting space.  The largest alternative probably is the concept of satellite churches.  Rather than building massive, mega church facilities many churches are instead opening “branches” in smaller lower cost facilities.  (Refurbished strip malls for example)
  • The next category, missions and evangelism (outreach) will vary greatly from church to church due to variances in missions and vision.  Typically this includes foreign mission support, local community outreach and evangelism, and social needs (clothing, food, health care, etc.) 10% is common but churches using alternate ways of providing meeting space have been able to increase the amount they can spend on outreach
  • The last category is local church programming (In reach) which are the primary ministry activities directed to church members.  These include Sunday School and discipleship, vacation Bible schools, Christian education, recreational activities and day care services among many others.  20% is common.

Budget Development – Step Two

The purpose of Step Two is to allow church ministers and lay leaders to know “how much they will have to work with.”   This is extremely important on two levels:

If ministers are given too low a figure, they may become discouraged even before the fiscal year begins.  They may begin to think and mull questions like these in their minds:

“Do they think I am a miracle worker?

 “This is an impossible task.”

“What’s the point?”

“I think I may be at the wrong church”.

On the other hand, if the ministers are given an unrealistically high amount to work with they will most assuredly become discouraged during the fiscal year.  This is a frequent occurrence with the “dream big” budget method.  Often, the ministers do exactly what they were asked, dream big.  And usually, the dreams are bigger than the resources.  The inevitable result will be failure which may breed discouragement. Dissension may not be far behind. 

The best way to avoid this is to start with what you’ve got!  Try to project what the church’s revenues will be for the upcoming year.  Do not simply increase last year’s budget as things might have changed significantly since then. Try to use “real” giving numbers. 

Just like the investment advisor’s standard warning, “Past results do not guarantee future results”, what happened in previous years may not happen in the next year at a church.  But, past giving activity is a good place to start.  First, take a look at the church’s receipts over the last three years or so.  Also, take a good look at attendance levels to see if any noticeable trends are present there as well.  Combine these two data points to make as good a prediction as possible of what the church expects to receive in offerings in the next year.

Next, the church should turn its attention to the expense side of the ledger.  The first step in this process is to calculate the cost of simply “keeping the doors open”.  In most churches this will consist of personnel costs, facilities costs, and denominational commitments.  Deducting these costs from the projected revenues results in a more realistic estimate of the dollars the church has available for ministry.  Ministers then should have a realistic idea of how much money they have to work with to carry out their particular part of the church’s mission.

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