7 ‘Must-Have’ Church Finance Steps
Love it or hate it, your church must manage money.
Keeping track of donations and expenses, following church financial management best practices, and even knowing where to start or where you’re going as a church is challenging if you don’t have adequate time or the right training.
Managing your church’s finances can be stressful. You may not know a lot about church finances and best practices but understanding the following basics will help you to navigate your way through all of the numbers:
- Watch your language…
- Learn the basics of budgeting
- Keep track of your expenses and donations
- Setup recurring giving
- Protect your church’s integrity
- Save for a rainy day
- Talk about money with your church
#1. Watch your language…
Managing church finances is critical as no church ministry can thrive when there are not available funds. But more important is to remember what – and whose – funds we are managing.
When we work with standard accounting terms – budgets, accounts, balance, income, expenses, etc., it is easy to treat church funds in accounting terms. But the church is not a business. And the funds you are privileged to steward is not ‘money’ or ‘income’. Rather it is peoples’ offering to God. When you call it that, you look at it differently. You treat it differently. And you use it differently. Use language that reflects the worship, generosity and vision of the people that give to your church.
#2. Learn the basics of budgeting
The best way you can steward your church’s financial resources is to create (and follow) a budget. No church can thrive when expenses exceed incoming finances. Keeping a budget is how you can steward expenses.
If you are new to budgeting, don’t panic. The basics of budgeting are reasonably simple and never changing. To help you think through your church’s budget, assess the current state of your finances by reviewing the last 1-3 years of your financial statements. Take a look at the trends in your church’s attendance and giving. Keep an eye on whether or not your church is experiencing a gradual or sharp increase or decrease in giving. This information can help you make wise decisions before moving ahead with significant financial decisions.
Church leadership should also consider the church vision and evaluate how each line item will help you get there. If a budget line item does not fit or help the church reach their vision, they should not hesitate in adjusting it or cutting it out.
These are the typical steps in developing a budget:
- Determine total anticipated revenue. Look at the previous year’s donations/revenue and consider the giving potential of your current congregation. Take into consideration any changes/trends in giving.
- Determine fixed and recurring costs for the upcoming fiscal year. Make sure you allocate sufficient funds to cover these expenses; e.g. mortgage, rent, insurance, taxes, utilities, CORE, General Conference, Ministers Conference, Regional Gatherings, etc.
- Determine costs of existing and proposed ministry/programs, including salaries and benefits. Include any changes to existing programs, buildings, or salaries and benefits. Make sure that all ministry/programs align with your church vision. If they do not, then you need to consider cutting them.
- Just like with a personal budget, compare your anticipated revenue to total of projected expenses. If your expenses exceed your income, you need to cut back on expenses or alternate or increases sources of revenue must be found. If your income exceeds your expenses, then set some funds aside for reserves/emergency savings (without hoarding) and then look at where your church can be generous with other ministries and/or create new ministry.
#3. Keep Track of Your Donations & Expenses
The Church Board is entrusted with responsibility to manage the affairs of the church, including the financial resources (money). The treasurer does not control the finances, but is the person primarily responsible to ensure that the details of financial decisions are carried out. Church finance best practices require that, the treasurer, staff or an outside hired accountant/bookkeeper, or a volunteer will need to keep track of how many donations your church receives (revenue) and how much money your church spends (expenses).
Tracking and maintaining a good record will help make completing annual government forms (like the T3010), GST/HST rebates and be ready for any audit or financial review.
It is highly recommended that you download The Free Methodist Church in Canada’s ‘A Guide for Church Treasurers’ for information on how to track/manage the church offerings, bookkeeping, payables, staff payroll and expenses, GST or HST rebates, designated funds, audits, government filings and more.
It is very important that all church funds be handled carefully and with integrity. The bank reconciliation should be completed monthly. In simple terms, this is reconciling or balancing the church accounting records to the bank statement or records. Getting into a routine helps keep your books up to date. If you treat each month like a ‘year-end’, then the year-end report is simply another month-end report.
Church leadership should meet to discuss the budget at least one a month to ensure that spending is in line with expected fluctuations in cash flow. Their goal is that expenses do not exceed incoming finances (and reserves) so that ministry can thrive in your church.
Another significant trend to track in your church is how much the average member donates. The easiest way you can measure your average member contributions is to divide your total donations by the number of ‘giving units’ in your church. A giving unit is an individual, couple or family who gives to your church. To help make this more practical, if your church received $120,000 in donations in 2017, and you have 100 giving units, then your average giving per unit is $1,200 per year. So, this means if your church’s membership increases by 10, then you can consider forecasting an additional $12,000 in your budget. Or, if your membership decreases by 10, then you will need to reduce your budget by $12,000.
# 4. Make Recurring Giving Easy
Providing digital options to give is essential for your church, and this will continue to grow in importance. Many people in your church no longer carry cash or cheques and use their phone to make purchases, which means that they are not only comfortable with buying and giving online, but they prefer to do so. Providing electronic or digital ways for people to easily give both online and through their mobile phone helps make their giving an easy – and joyful experience.
With both online and mobile giving, you can easily encourage automated or recurring giving. When members of your church are not physically present in your worship service, then they tend not to give. The lack of giving in these situations tends to be due to someone’s forgetfulness; not their sinfulness.
Leading your church to automate their giving will help your church budget —and it will help you to build a more generous church culture.
The easiest way for you to lead your church to automate their giving is to enthusiastically encourage members who regularly give a cheque to automate their giving – in a way, to “set-it and forget it”. A great way to do so is to have church leadership and staff try it first. There are many tools/options available but you want to make sure that the one you choose is flexible and allows members to create an account and set up (or change) recurring giving with a few clicks. (Click here for more information on Giving Tools)
In general, people who sign up for recurring giving donate more frequently and donate more per year. For your church, automated giving creates a steady and predictable source of donations. What is more, data from Network for Good shows that donors who set up recurring contributions give 42% more annually versus those who make one-time donations.
Recurring giving also helps your church avoid common slumps in summer and holiday giving, and will help your church to know what to expect each month with giving.
#5. Protect your church’s integrity
Stealing is a problem inside and outside of the church. As a church, your leadership is called to stay above reproach (1 Tim. 3:2; Titus 1:6-7). So, it’s essential for your church to have a variety of safeguards in place to protect the integrity of your church and leadership.
Here are a few things for you to consider:
- Ensure that cash is never handled by only one person
- Require dual signatures (never, never sign blank cheques)
- Supporting documentation should always be presented with the cheque to be signed
- The person authorizing the invoice should not be the same person who signs the cheques
- Reconcile your ledger each month
- Limit access to bank information
- Encourage volunteer rotation
- Confidentiality statement should be signed by everyone that handles donations
- Coordinate an external audit or financial review
# 6. Save for a rainy day
Unexpected expenses or an extended decrease in giving can catch the best treasurer off guard. It is a good idea for your church to have a financial cushion – or reserve for emergencies.
A reserve fund can serve as a contingency for unexpected expenses or downturns in giving. Having emergency savings is considered good financial practice – both with other organizations and with families. To explain this fund, you can include the following statement in your annual budget: “As good stewards of God’s funds, we seek to maintain the equivalent of approximately three months’ funding of the annual budget for unexpected contingencies.”
As you build your cash reserves, aim to save enough for your church to cover 3-6 months of expenses. Having a cap on the reserve funds communicates wise stewardship rather than hoarding.
# 7. Talk about giving with your church.
Many church leaders struggle with talking about money – especially when giving is down.
However, talking about giving to the budget does not inspire people to be generous. We need to recognize that their offering is to God (not the budget). We need to acknowledge their partnership with your church in meeting the mission God has given your church. We need to connect how the budget is connected to this vision, and how their giving helps accomplish this. We need to say ‘Thank You’.
Most importantly, as church leaders, you must lead the way – talk about how your church demonstrates generosity. Talk about why you give to CORE, Giving Streams and other community charities. Talk about why you give first – trusting that God provides as you seek His Kingdom – instead of waiting to see if anything is left over.
There are a number of tools and resources that are available on fmcic.ca/stewardship that can help you start the conversation, including:
- Narrative Budget
- Generosity Assessment
- The Offering Moment
- Whole Life Generosity
- Giving Circles
- Planned Giving
If you would like more information on understanding church finance, any of these resources, or would like coaching in cultivating generous stewardship in your community, please contact [email protected].
Adapted with permission from Giving Today.