Church Budgeting 101
Our goal for this course is to provide you with some backbone techniques and principles to start budgeting for your church’s financials. Sign up here and we will send you the entire course through email.
In this email course, we’re going look at some different budget methods, particularly those that often work well for churches.
But first… what purpose does a budget really serve a church?
A budget is your roadmap to help make planning in your church easier. Many churches today take a “use it or lose it” stance on money in the name of trusting God to provide more when it’s needed. Though trusting in God to bless us is important, we still need to put forth effort on our own to think ahead. Proverbs 27:23 reminds us: “Be sure you know the condition of your flocks; give careful attention to your herds.” See more on this from Dave Ramsey
That’s why you need a plan…
Studies show that approximately one of every two churches in America is in debt. Most spend a large amount on their debt retirement each year. Taking a good hard look at your church’s debt is key to building a sound financial plan. But you can’t do that without first learning to budget. Why do churches need to budget?
Churches handle their money using fund accounting, which has a focus on accountability rather than profitability. Nonetheless, budgeting remains important but with a slightly different focus than if you were preparing one for a traditional business.
Budgeting practices within a church mainly focus on the stewardship of resources instead of profit margins. Good church stewardship means giving a specific purpose for every dollar you receive. The more purpose you give to every dollar you receive, the more details you can build into your budget.
Common Approaches to Budgeting
Rolling Forecast – typically a monthly budget that is updated at a recurring periodic interval. At Aplos, we have a rolling forecast that is updated after the close of every month. Part of our closing process is to update the lapsed month with actuals, compare them with the budgeted numbers, and then update the future forecasted numbers.
Example: If I budgeted for $10,000 worth of expense at the beginning of the year for an event in June, but that event only ended up costing the church $2,000, I may want to update the budget to reflect that so that July – December is more accurate. Or, if you decide to hire someone mid-year and didn’t expect that initially when creating the budget, you may want to update your budget forecast for the remainder of the year.
Why it’s important: Your budget will change depending on actual activity.
Zero-Based Budgeting – is a method of budgeting in which all your church expenses must be justified for each new period. The process of zero-based budgeting starts from a “zero base,” and every function within your church is analyzed for its needs and costs.
Why it’s important: With zero-based budgeting, budgets are built around what is needed for the upcoming period, regardless of whether each budget is higher or lower than the previous one.
Annual Budget – typically refers to a 12 month period of covering the “fiscal year” of an organization that is presented to a bank or board of directors. Think “set-it and forget it.” The budget doesn’t change during the year, but you do need to answer questions throughout the year as to why actual results are different than budgeted.
Variance Analysis or Budget to Actual – a comparison of the actual results during a period of time compared to the budgeted results with explanations of significant differences. This reporting can also help in catching fraud as material differences will be investigated as part of the process.*
*Pro tip: The Variance Analysis/Budget to Actual is a very helpful use of budgeting – it can help you understand what the drivers are of a specific financial condition for your church.
Common Church Budget Categories
- Personnel (salaries, benefits, etc.).
- Administration (operating expenses).
- Facilities and Equipment (utilities, insurance on property, maintenance)
- Outreach (missions, evangelism, social events, etc.).
- Direct Ministry (the various ministries of the church such as children, youth, counseling, adult, men, women, etc.).
- Church Expansion Expenses
Exercise for today: What do you have money set aside for, and have you put it in the right category?
Want to see more? Sign up here and we will send you the entire course through email. We’ll delve deeper into the subject!