Owning, operating, and maintaining cars is a never-ending and expensive cycle. Purchasing a new vehicle to avoid repair costs is not a great plan because new cars are expensive and a horrible investment, losing up to 60% of their value within the first five years. Accepting and embracing repairs is part of ownership – even new cars eventually need tires, brakes, and other maintenance. The good news is that car manufacturers have made it easier to know when the vehicle is not functioning correctly and provide obvious warnings. We all know how to read the fuel, oil, and battery gauge. In addition, the dreaded “check engine” light comes on when things get really bad. And sometimes, we can feel something wrong without a warning light, like a flat tire or warped brake rotors.
Recently I was driving down a long, steep grade and needed to apply my brakes frequently to avoid speeding and running into the car in front of me. Each time I applied pressure to the brake pedal, I could feel the car wobble or shimmy, a clear warning sign that something was not operating as it should. I needed to assess the best course of action: ignore it and keep on going, acknowledge it and determine if I could make adjustments to finish the trip or pull over because something tragic was about to happen to me and others.
Like a car, church budgets often show warning signs that, when left unchecked, can bring tragic results. Because church budgets are vital to the functioning of a church, it’s essential to notice these warning signs and take corrective action before it’s too late. Here are the top three warning signs of a poorly constructed church budget.
It Only Took a Week to Create
A church budget created in a week is not a sign of efficiency; it’s a big, bright, flashing warning sign. A church budget is the best way to manage God’s money in a way that honors Him, demonstrates accountability, and ensures the appropriate funding of the church’s mission, vision, and values. Regardless of the size of the church, proper planning of the church budget needs to follow a progression of steps and can take up to five months to complete these steps:
- Cast vision for the upcoming fiscal year. Assemble all the staff and volunteers responsible for financial oversight and budgeting in their area of ministry or operations and share the specific initiatives the church plans to accomplish in the upcoming fiscal year.
- Create the first draft. Empower the leaders to create a budget for their area of oversight based on the mission, vision, and values for the upcoming year. The first draft should include ongoing expenses based on historical spending and the cost of new initiatives and projects. The first draft is an excellent opportunity for the leaders to pray and dream forward about all the ways God can work in and through the church in the upcoming fiscal year.
- Calculate the projected income for the upcoming fiscal year. Base the upcoming fiscal year’s budget target on historical data and current growth or reduction trends. Projecting the target requires essential quantitative data to evaluate trends.
- Compare the income to the expenses. Use the first draft of the ministry and operation budgets (expenses) and compare that total to the projected target (income). Based on the difference, adjust the budgets and expectations accordingly. A church cannot expect to accomplish a goal it cannot fund. It is natural for the expenses to outpace the income at this stage of the process.
- Finalize the budget. Once the adjustments to the individual ministry and operation budgets balance with the projected revenue, share the information with the leaders first and then with the church body. Sharing the budget promotes accountability and transparency with the staff, volunteers, and congregation.
It Disregards Healthy Metrics
Putting black electrical tape over the “check engine” light does not solve the issue; it just masks the fact that something may be wrong. When constructing a budget, it’s imperative to know quantitative metrics that compare your church to that of a healthy church. Using metrics doesn’t mean unhealthy comparisons that often lead to pride or insecurity. Instead, use these metrics to reveal the church’s overall health – think of it as taking the church’s blood pressure. Let’s acknowledge that there are all kinds of qualitative metrics to measure the church’s spiritual health, like joy, excitement, unity, evidence of the Spirit working, zeal for the least, last, and lost, etc., and these are often subjective. But, for budgeting purposes, there are four vital quantitative metrics every church should know to create a healthy budget:
- Attendance. An accurate count of the adults, youth, and children at each service, on campus and online, remains one of the building blocks to discovering the direction of the church. Attendance shows trends that shape the budget. Attendance data can answer questions like: Is there growth? Where? If not, are additional resources required to invest in accomplishing the mission?
- Giving. Giving data can reveal several areas of health in the church, like generosity and biblical stewardship. Giving data answers essential questions: How many first-time givers were there in the last 12 months, and how does that compare to prior years? What percent of the church attendance gives regularly? How consistent are the givers? Is the church reliant on only a few big givers, or is the load spread out?
- Staff to Congregation Ratio. The staff-to-congregation ratio answers the critical question of how many full-time equivalent employees (FTEs) the church has per average Sunday attendance. A healthy church has a 75:1 FTE to congregant ratio. Because the compensation in a healthy church consumes about half the operational budget, the FTE to congregation ratio is an indicator that lets a church know if it’s under or over-staffed – key information when making a budget.
- Total Compensation Cost. For many churches, compensation is one of the most significant expenses, but how much is too much? How much is not enough? Healthy churches spend between 45% and 55% of their total operating budget on compensation. There are reasons why some healthy churches (usually older established churches) fall on the higher end of the spectrum and why newer churches often fall on the lower side. Use these percentages as a guideline, not an absolute.
It Looks Suspiciously like Last Year’s
It’s probably not a good idea to replace a flat tire on a car with a bald tire because you’ll be in the same situation again shortly – you need to get a new tire to replace a flat. Simply copying last year’s budget and putting the next fiscal year on the header is not budgeting – it’s lazy. It’s time to start managing God’s money seriously and build a zero-based budget. A zero-based budget is more than simply copying and pasting last year’s budget; it starts with a blank piece of paper or spreadsheet and assumes nothing. Of course, using historical data from previous budgets and expense reports makes sense. Still, a zero-based budget prevents the church from bringing forward legacy spending without evaluation and forces the church leadership to cast a vision and plan for the upcoming fiscal year.
Churches have a high calling; they exist to go and make disciples of all nations, baptizing them in the name of the Father, the Son, and the Holy Spirit and teaching them to obey everything Jesus commanded. Churches can ignore the warning signs of poor budgeting but do so at the risk of being ineffective and not reaching their full potential. Watch for the warning signs and take corrective action as soon as possible, and before you know it, the church will be cruising down the road again.