A fiscal year is a 12-month period businesses use for financial reporting and budgeting. Using a fiscal year is a common way to prepare financial statements. Our church begins its fiscal year in October and ends in September, just like the Federal Government. There are advantages of operating the church finances on a fiscal year, like using the slower summer months to create a zero-based budget focused on carrying out the mission, vision, and values in the upcoming year. It also allows us to start the year (fiscal year) in a strong financial position since the first quarter contains October, November, and December, with December being the anchor. Of course, the danger is for the organization to think each quarter will perform equally throughout the year and spend the surplus instead of using it to supplement the lean quarters. The book of Proverbs contains plenty of solid financial advice, and I believe Proverbs 21:20 speaks to this situation perfectly, “The wise have wealth and luxury, but fools spend whatever they get.” As managers of God’s resources, here are a couple of ways to ensure we are not counted among the fools and thrive throughout the fiscal year.
Monitor Donations by Quarters
Just as weather follows specific seasonal patterns, church donations change through the quarters too. Because the budget covers 12 months, understanding how the income fills each quarter helps avoid costly mistakes, like spending the surplus of a top-performing quarter and leaving your church in a poor financial position in lean quarters.
How to Determine Donations by Quarter
When possible, use at least the five years of donations to discover trends. There are subtle variables, like 5-Sunday months and when Easter lands, that can skew limited amounts of data. Using a spreadsheet, show the years as columns and each month as a row, separated by quarter. Then, divide each quarter by the total. In the example below, it is clear that the quarter containing October, November, and December has about 6% more in donations that January, February, and March. That is a significant difference.
Monitoring Spending by Quarter
Spending is as cyclical as giving in churches. Knowing which quarter(s) are tops in spending provides insight into managing donations throughout the year. The process is the same as determining donations by quarter. But notice the subtly of the word spending? Expenses will not show all of the outflows of cash, like the principal amount of a mortgage payment, making a cash flow report more accurate when building this spreadsheet.
Evaluating the Results
Coming off the emotional and financial high of Christmas and the end-of-year donations could deceive some into thinking they can finally purchase the new sound system or add the staff member so desperately needed. But, as shown in the example used to monitor donations by quarter, the quarter containing October, November, and December shows a 6% increase over the next quarter. The church must evaluate if the surplus of 6% is enough to cover the lean quarters and support additional ventures. But, understanding the ebb and flow of each quarter’s donations is only half the picture. Knowing which quarter is most expensive provides the rest of the information needed to make sound decisions. Imagine the potential cash flow catastrophe if the lowest giving quarter aligned with the highest spending quarter, but the church consumed the surplus from the highest giving quarter.
It may take a little time to compile the data and run reports to identify top-performing quarters and high expense quarters provide the data necessary to make critical financial decisions. But, the investment is worth the cost, especially when feeling pressure to spend all you get – because Proverbs 21:20 tells us that is just foolish.