Budgeting in the Local Church: Participation Counts
by Michael Comer
More emphasis seems to be placed on the financial budgeting process in our demanding world, whether it is in a megachurch or a small rural church. In a survey of churchgoers researcher George Barna found that basic values are shifting. What used to be a given value of "trusting people" has shifted to "proven integrity" for church leaders. Church members are demanding greater accountability for moneys donated to the church. This accountability exists in financial reporting as well as the spending and budgeting processes.
Some Basic Concepts
It is important to examine some basic budgeting concepts before examining the church budgeting process.
1. Cash flow. Cash flow is defined as the amount of cash available to meet obligations to creditors, loans, or long-term debt. The first, most basic concept in budgeting is the possible variance between budget and cash flow. This is also one of the first concepts taught in basic accounting. Although an item may be present in the budget and scheduled to be bought in a certain month, sometimes it cannot be bought due to lack of cash.
A wise church will budget large items when the giving trend is at a high level such as in December, which tends to be a high-giving month. Many businesses keep a budget and a separate statement estimating actual cash receipts and cash disbursements for the month (called a cash-flow statement). However, in the local church a simple monthly budget should suffice if giving trends are considered when a budget is conceived.
2. Commitment. Anyone who has established a home budget knows it is of little consequence unless everyone agrees to live within its parameters. Financial accountability is important in a church. It may take the form of monthly financial reports given to a church board or a weekly accounting of major income in the church bulletin. In the larger multistaff church, pastors and departmental leaders are given monthly updates of their spending and are accountable for keeping expenses within the budgeted amount.
3. Contingency. Each budget should have a general contingency amount that is considered an emergency fund. That contingency is usually a percentage of the total budget and can typically be up to 5 percent of the total budget. Church leaders tend to think the contingency amount is available to be spent on unplanned items or items not directly connected to a yearly goal. However, the idea of contingency is for emergency items and should be allocated reluctantly. Once again it is important to distinguish between "budgeted" contingency funds and "real cash" contingency funds.
For example, a church may have a $1,000 positive difference between budgeted income and budgeted disbursements; but because they spent more on disbursements, their actual cash in the checkbook may be $500. The $500 balance is "real cash" and should be considered the actual contingency amount.
4. Congregational participation. "Change management" is a watchword of the 1990s. Part of managing change in a corporation or in the church is having people participate in that change. Budgeting with participation means the congregation has active involvement in the budgeting process both in establishing the budget and in reporting budgeted spending.
Our church involves representatives from the congregation in a budget-committee structure. This committee reviews goals and budgets and recommends changes to the church board. We also provide financial reports to the congregation, primarily through our annual report, which shows the previous years spending and the coming years budgeted amounts.
5. Communication. Communication is the key in all phases of the budgeting process. If the budget is a departmental budget coming to the senior pastor, the need and the priority of the need must be communicated. The vision and overall yearly objectives of the ministry must be communicated from the pastor to the departments or persons preparing the budgets. Communication of the process and needs must be communicated to the congregation participants (through the budget committee, church board, and congregational reports).
Establishing a budget
Most budgets are based on the previous years giving and spending. If the church is experiencing a steady rate of growth, the budgeted income may be increased based on that growth rate. However, if the income portion of the budget is increased, it should be based on realistic data. If the church experiences tremendous growth during the year, the income can always go over the budgeted amount. But if income is budgeted unrealistically, it is difficult to readjust spending and income estimates.
Budgets can be established using a "bottom up" or "top down" approach. The bottom-up budgeting approach allows each department (youth, Christian education, etc.) to submit the amount they need to accomplish their ministry for the year. These amounts are compiled by the church treasurer, pastor, or church leader and usually presented to the church board or congregation for approval.
The top-down budgeting approach consists of a central leader (pastor, treasurer, finance director) who establishes overall spending amounts for each ministry area and communicates the amount to that department or ministry area. Each departmental leader then determines how the overall amount allotted for spending during that year will be spent.
The top-down approach is often used in smaller churches where the pastor can determine amounts in conjunction with the church treasurer or board. As a church grows and has multiple staff, the bottom-up approach may be more advantageous since each ministry leader is more aware of the needs.
At First Assembly of God in Winston-Salem, we use a bottom-up budgeting approach. Based on the previous years spending as well as future goals established at an annual retreat, each department gives an amount to the senior pastor. We attempt to base all spending on reasonable and achievable goals for the coming year. The process works like this (see graphic):
1. Planning meetingspending tied to goals.
Each October the pastoral staff spends 3 days at a planning/strategic vision retreat. Each ministry is represented. The senior pastor sets the pace by reviewing the major accomplishments of the past year and the challenges of the coming year. Each pastor shares goals and how each ministry area fits into the overall vision of the church and the specific vision for the coming year. (These goals are reviewed quarterly by pastors through status reports at a biweekly pastoral staff meeting.)
2. Department/pastor submits budget to senior pastorbudget communicated.
After the goals have been analyzed and approved, each pastor submits a budget based on known ongoing items, previous costs, and events planned to accomplish the goals of the ministry. Ministry heads may meet with the senior pastor to describe thought processes, how costs were derived, or the priorities for their ministries.
3. Senior pastor prioritizes and reviews with finance directorbudget tied to overall organizational goals.
The senior pastor reviews the budgets with the overall objectives of the ministry in mind and sets priorities based on what the church needs to accomplish during the coming year. These reviews often take the form of consultations with the churchs finance director.
4. Changes discussed with departmentsbudget communicated again.
Changes that the senior pastor feels are necessary to the departmental budgets are discussed with departmental leaders. Sometimes amounts can be compromised, shifted to other areas, or planned for another year.
5. Revised budget sent to budget committeecongregational participation gained.
In October the pastoral staff nominates four members of the congregation to serve on the budget committee. These people serve 2 years, and four of the eight members are appointed each year. The budget committee members usually are a combination of men and women who have financial backgrounds, have consistent giving records, and are active members. One of the committee members is a church board member. The church treasurer is an ex officio member.
The budget committee has three 2-hour meetings to review and revise the budget. The meetings are conducted by the church finance director with the church treasurer. The senior pastor is usually present at the last meeting to review the budget committees recommendations.
6. Revised budget sent to church boardbudget approval given.
The church treasurer presents the budget to the church board for analysis and updating.
7. Budget adopted by congregationparticipation and questions encouraged.
During the annual business meeting, the senior pastor and the church treasurer present the board-approved budget to the congregation. Copies in the form of the annual report are distributed. Questions about the budget are encouraged and answered during the forum.
8. Budget communicated to departments/pastorsmore communication.
The approved budget amounts are communicated through reports to each departmentthe official department budgets for the year.
9. Budget tracked by departmentaccountability instituted.
Each pastor or departmental leader is responsible for monthly spending within the budget. A purchase order is used to track how much money is being spent monthly and is essentially permission to spend the amount budgeted. The pastor or departmental leader completes a form (purchase order) with vendor information, the name and cost of the item(s), and a number that relates the item to the budget. The finance director uses the purchase order to reduce the budget as well as track how much cash is available for the purchase. All spending must have a budget-tracking number. For major items, cash flow is monitored before approval is given.
10. Monthly report provided to church boardongoing communication and accountability implemented.
The finance director and senior pastor submit monthly updates of spending as well as next months budgeted amounts to the church board. Spending is constantly monitored to ensure it is in line with the budgeted amounts.
Although the process is well defined at First Assembly, breakdowns occurprimarily with communication, planning the amount of time needed, and when to begin the process. Schedules with committee members frequently change, and department leaders must wait on cost estimates from vendors. Planning, participation, and two-way communication have been key success factors in our budgeting process.
The budgeting process can be simplified through technology. Several budgeting packages exist for the church, both small and large. Christian Computing magazine lists numerous software packages for church finance.
Churches that are interested in updating their budgeting technology should contact a local retailer or computer consultant. Members of the congregation are often willing to use their computer skills and knowledge in the work of the ministry.
The financial stewardship of the church is an ongoing challenge for the pastor. New technologies, detailed processes, demanded accountability, and a heart for effective ministry combine to help pastors be faithful in ministry.
Michael Comer, an organizational development consultant, serves as the assistant to the senior pastor at First Assembly of God, Winston-Salem, North Carolina.