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Funding the Vision

budget

budget (Photo credit: 401K 2012)

Many churches start their new budgets in September.  So with that in mind, I am writing this blog post with a few thoughts on creating a budget.  I’ve been working with budgets for years; personally, in business settings and in ministry settings.  One thing I have learned is that you do not set a budget based on what you need, but on what you have available.  A budget says “If” we bring in this amount of money, this is how we are going to spend it.  They are actually designed to focus on making effective use of income rather than searching for money for expenses.  With that said, you should always start with a clear understanding of your income for the set time period.  When you are calculating this, you should never use percentages of increase to project your budget.  Always use real numbers.  If the past two quarters showed an increase of $2,000 each, trends would tell us that there is a good chance that the next quarter will show and increase of around the same amount if all other factors stay the same.

Projecting Your Income:

  • Numerical Projection:  Determine what your history has been.  You can look over a given history to help you in looking forward.  If possible, use at least two to three years of history to get a clear picture of giving.  Use this picture to identify trend of giving based on your history.  If in looking at the previous two to three years, you see that each year you had an increase of $50,000 annually, then you can project that conservatively you will see $50,000 in additional giving in the coming year.  You don’t go up on your projected giving until you have a track record that shows your giving can increase.  Use real numbers.
  • Per Capita Projection:  What is your per capita giving?  Take your average attendance and take your average weekly income for the year and divide it.  You will come up with the per capita income per person per week.  (The longer the length of time is for your averages, the more accurate your per capita giving will be.)  You then can use your average attendance and your projected attendance to make an calculated per capita projection.

Calculate both the numerical projection and the per capita projection and compare these together.  If there is a huge difference between these, you may need to look at what some variables may be that would be causing a huge difference.  Have there been some huge one time gifts?  If so, you may need to pull these out because they are skewing your results.  I’ve found that, generally, using both of these calculation methods put me very close to the same projections.  Once you determine an annual projection using real numbers, you can begin to move forward.  It is a good idea to be conservative on your projections.  You can always do more with increased giving, it’s harder to cut back from initial projections when the giving falls short.  Conservative budgets also will give your staff freedom to spend their budget as it is needed.

Creating Your Budget:

Once you have a good understanding of your estimated income you can then create A, B and C budgets.  The A budget is if God really blesses and everything goes right (could be anywhere from 10 to 20% above budget).  The C budget is if things get tight and things go wrong (maybe 10 to 20% below budget).  The B budget is the primary operating budget and this allows shifting up or down.  You need to plan all three budgets in advance.  It’s easier to make alternate plans in advance than when you’re in the middle of the storm.  As you create these, have a simple one page broad budget by major categories.  Don’t get too detailed, just list general categories (i.e  Children’s Ministry, Student Ministry, Evangelism etc…)  Have 2 or 3 line items in your budget that are open and flexible, these could be designated as “Special Projects & Events”, “Ministry Expansion”, etc…  This gives you opportunity to also meet needs as they arise through the year using these categories.  When you are assigning dollar amounts to budgeted areas, don’t make it so tight that ministries can’t function.  Allow room for flexibility.

Filling in the Details:

Look at the overall pie and determine the percentage of the pie that goes toward Staff.  Keep in mind that churches are largely volunteer in structure, so we need staff to lead them.  Only use percentages for allocations.  Payroll should be no more than 50 to 55% of budget.  If your payroll is below 30% you are probably understaffed or not paying your staff enough.  Building needs should be 20% of budget.  Missions should be at least 10% of budget (this is all missions including international, national, state and local). Areas of Ministry should be 10% of budget.  This leaves 5 to 10% for other areas.

You need to know your seasons so you can manage cash flow.  When is your biggest quarter? When is your weakest quarter?  Are there times in the year that the cash flow expenses may naturally increase, but at the same time the cash flow income slows down?  Generally first quarter is going to be one of the strongest quarters.  At the same time, the end of second quarter and third quarter can also be a struggle.  Have a plan of action in place for if you consistently miss budget.  When will you move to “C” Budget?

If possible, allow your ministries to have the same budget as previous year plus half of the planned overall percentage of increase.  (i.e. if after you determine your dollar amount projection, you determine it will be a 8% increase, allow each ministry to increase their budget by 4%.)  Then look at what was spent in each ministry.  Identify growing ministries that may need slightly more of an increase to cover needs.  Prior to having the staff develop their budgets, give them the specific dollar amount they will have to spend for the year.  Don’t give percentages or expect them to calculate their overall budget.  Once they have their overall budget, have the staff submit 3 budget requests.  The first request is their General Budget Request (this will match the number they have been given).  The second request is a One Time Request.  This is when a ministry has an expense that is not a reoccurring expense.   The third request is a Ministry Expansion Request.  This is to expand their current ministry into a new area that will be an ongoing part of the ministry from that point forward.

Reserves:

Don’t think you have to spend surplus just because you have it.  At the same time, you shouldn’t hoard what God has given to the church just because you’re not sure about what will happen in six months.  We serve a big God who is capable of providing our every need.  You can set aside a Cash Forward Reserve (2 to 4 weeks of operating budget) in a separate account so that if things slow down, you have a few weeks to make budget adjustments.  Anything past this amount would be considered idle money.  One of the principles from the parable of the talents is that God hates idle money.  It should be put into play for the Kingdom.  Not doing so will limit God’s blessings on your church.  Our faith is in God, not in our money.

Note: You should never promote that you are behind on budget.  People do not want to give to a sinking ship or a need, they want to give to a compelling vision. So promote a compelling vision.  What is God doing? Where is He leading? What needs can be met? Make it a habit to talk vision at every opportunity.  It is also good to identify your annual turnover rate of individuals/families in your church.  This number is good to know as it will help you not only understand the importance in developing a culture of giving in your church, but also realize that every year there is a portion of your income that is always changing.

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