As a kid, I remember laying on the yellow-brown shag carpet in our home as my dad and I watched Jerry West, Wilt Chamberlain, Happy Hairston, Gail Goodrich, and Jim McMillian lead the Lakers to victory after victory on the TV. I fell in love with the beauty and athleticism of the game of basketball. As the 70s rolled into the 80s, the Showtime Lakers, led by Earvin “Magic” Johnson and Kareem Abdul-Jabbar, reignited my passion for the game. As each new season started, Magic displayed a new skill he didn’t have the previous year. That’s when I realized that to be great at something required a continuous state of improvement. While other average players were resting during the off-season, Magic was in the gym working on something new to create an advantage over his opponent.
In the same way that athletes use the off-season to rest, recover, and then begin to focus on building strength, endurance, and developing new skills, the budget team needs to follow a similar strategy. Notice how the process starts with a period of rest and recovery. Some budget seasons are way more strenuous than others, and it’s good to take a breather and step away. But, as the new fiscal year gets underway, it’s time to start the off-season practices. Here are four ways to take advantage of the church budget off-season.
Compare Donations to Budgeted Projection
Projecting the income for the upcoming year is the linchpin of the budget, and it sets the bullseye of the church budget’s financial target. There is tremendous pressure for all functional and ministry areas within the church to hit this number during the budgeting process. It provides the framework to fund new ministry initiatives, facility projects, pay increases, or to prioritize necessary reductions. Creating the target takes time and accurate data.
During the off-season, it is imperative to track the accuracy of the projections. Every church should be reconciling and closing the books monthly as it provides critical insight into the income (donations, rental income, etc.) and the church’s expenses. However, a monthly view of the income compared to the budget projection can lead to wild emotional swings. For example, December donations are typically higher than in other months because of Christmas and year-end giving initiatives. Financial decisions made solely on a monthly view of actual giving compared to the budget projection could lead to some inaccurate assumptions. Reviewing the actual donations to the budgeted target every quarter provides a broader perspective to assess the accuracy and determine if the church needs to make necessary adjustments.
Compare Expenses to Budget
When closing the books each month, the Statement of Functional Expenses report provides essential details on how much money was spent and breaks it down by Chart of Accounts (COA) categories. According to the Association of International Certified Professional Accountants (AICPA), a Statement of Functional Expense report is the “most efficient and effective way of presenting the analysis of expenses by function.” During the church budgeting off-season, this report helps each functional and ministry area determine if their spending aligns with the budget. Remember, expenses can fluctuate from month to month, just like donations, making a quarterly review more effective.
Determine if Adjustments are Necessary
Churches taking advantage of the budget off-season find themselves armed with monthly reports and quarterly reviews on income and expenses. Now it’s time to determine if adjustments are necessary. If donations exceed the projection, it makes sense for a church to take advantage of the increase in giving and invest in the church’s mission because that’s exciting and why people get into ministry. However, if the data shows that the budget target is too optimistic and will not meet giving expectations, it’s time to take appropriate measures to avoid a negative cash flow. Mission and vision should always guide any financial decisions, but it becomes even more critical when deciding where to reduce funds.
Prepare for the Next Budget Season
The NBA regular season has 82 games starting in late October and ending in April – then the playoffs start. For the two teams that make it to the NBA Finals, they will play into June. The best teams play 8 out of the 12 months of the year.
Creating a thoughtful, prayerful, zero-based church budget can take up to 5 months. During the 7-month off-season, take advantage of the available time to review the income and expenses, making adjustments as necessary. Gathering and analyzing the data throughout the year is a great way to prepare, as it gives the financial team new skills and insights for the upcoming church budget season.