Regardless of your personal thoughts on if we are living in a post-Christian America or not, operating a church in today’s economy and politically charged climate is challenging. Inflation is still plaguing many Americans, with a 12-month percentage change of 6.4% in January 2023, biting into charitable giving toward churches. With so much at stake, here are eight essential tips when creating the church budget.
Avoid Overestimating Income
It may be tempting to inflate the annual projection for giving, especially to fund staff and ministry, but using overestimating income could devastate the church. Use a method based on actual attendance and giving trends to project the next fiscal year’s income.
Avoid Underestimating Expenses
In the same way that overestimating the projected income could bring about a financial crisis, underestimating expenses will bring about the same results. Even when using a zero-based budget, it’s wise to use the prior year’s expenses to guide the upcoming year’s budget – and keep the current inflation rate in mind.
Watch the Cashflow (Don’t Overspend)
This topic falls into the stewardship category of operating a church – don’t spend financial resources God has not entrusted to you. Running a monthly cash flow analysis from the accounting software provides insight into income and spending.
Allow for Seasonal Ebb and Flow (Review Quarterly)
Many churches do not have consistent income month-to-month throughout the year. Instead, there are months like December, where giving spikes (Christmas and Year-End donations help), and others like January, where donations typically dip. Using several years’ monthly data, determine which quarters are top performers giving the insight to make wise spending decisions.
Know Healthy Church Percentages
Churches come in all sizes, denominations, locations, and budgets. There is no such thing as a one-size-fits-all solution when it comes to healthy church percentages. Think of it like checking your blood pressure, some very healthy people might be outside the range, but overall, it’s a good measurement. Here are a few metrics that churches should consider:
- Compensation: The most significant expense in most churches is compensating the staff. For healthy churches, it ranges from 45% – 55% of the operating budget. In addition to the percentage of the overall budget, consider the staff size – healthy churches have a 1:76 ratio of FTE (Full Time Equivalent) employees to congregants.
- Facilities: Covering essentials like mortgage, utilities, maintenance, custodial, insurance, etc., church facilities can range from 20% – 40%.
- Ministry: Covering ministry expenses like local and global outreach, missionary support, children’s, young adults, and adult ministries should range from 20% – 35% of the total budget.
Debt is not a sin, but it’s never talked about positively in the Bible. At the very least, it hinders ministry, robbing churches of reaching their full ministry potential. Churches dealing with non-mortgage debt should produce a debt-elimination plan as part of the budget.
Have an Emergency Fund
Those familiar with Dave Ramsey’s Financial Peace University know he recommends an emergency fund of 3-6 months’ worth of expenses. While that advice for personal finances is terrific, it may not be the most strategic or realistic for operating a church. Experts on the subject, like those at Capin Crouse, recommend 40 to 80 days’ expenses.
Build Sinking Funds
A sinking fund is a way to address a future expense before it’s due. For example, a good roof typically lasts 20-25 years. Instead of waiting for the roof to collapse and using the emergency fund, or worse, borrowing money, determine the cost of the roof, estimate how much longer it should last, estimate the cost to replace the roof, then set aside the money each month to replace it.