How to Tell If Your Church Has a Good Financial System

Learn what you can do now to lead your church to financial health. We will share some of what we’ve learned in over 20 years of advising nonprofits and churches, including how to be good stewards, how to utilize your board or elders, and some best practices for fund accounting and overseeing your finances.

In this course, we will address the essentials you need to understand the financial health of your organization. When you complete it, you will know the tools you need to track your finances and steer the financial future of your church.

Let’s get started. Evaluating your financial health starts with your financial system.

Elements of a Good Financial System

Fund Accounting

An important element of stewardship is making sure the money you have, receive, and spend is allocated for the proper purpose. To accomplish this you need a solid fund accounting system. Do you have quick access to your finances and the ability to run reports? If you rely solely on one person to not only run reports for you but also to interpret them, it would be helpful to spend time gaining more knowledge about those reports so you’re not always waiting around.

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Want more? Check out this article about best practices in church finances.

Internal Controls

Much like tracking your giving involves a solid process with steps that protect the people involved, your financial system also needs similar protections. Do you have steps in place to reduce fraud, protect your volunteers, and ensure accountability? These internal controls include:

• Activity logs for bookkeeping
• A separate person who approves and signs checks
• Financial reports that are reviewed and approved regularly
• Bank reconciliations that lock down historic transactions and close periods

Financial Reports

Your financial reports are an essential piece of implementing stewardship across your organization. They can tell you if you are spending money wisely, if you are managing your funds appropriately, and if you are budgeting accurately. But in order to use your financial reports to answer these questions, you need to be able to read them. When you see reports, do you know what they are telling you? Here are some of the most common reports that your fund accounting system should be able to produce so you can evaluate what is working and if your church is financially healthy:

The Balance Sheet by Fund

• What Is Your Restricted vs. Unrestricted Balance?
  If you have too much money and it’s restricted, it’s going to really limit how much you can spend on your overhead and things you need to get the work done.
• Cash on Hand and Rainy Day Fund
  How much cash is in the bank right now? Do you have a rainy day fund? These are questions you need to be able to address for good financial leadership.

Income Statement

• Is Your Income Exceeding Your Expenses?
• Do You Have a Plan for Big Expenses?
  If you need to replace the copy machine or manage a big building repair, do you have money set aside? Or do you need to raise money to cover the cost? You don’t want to wait until something absolutely has to happen to get it done.

Other Reports

• Budget to Actual
  This is a big one. You want to set a budget and track how you are doing against that budget. This is a common report you’ll see in fund accounting.
• Monthly Budget and Cash Forecast
  Without focusing on your annual budget, what is your monthly budget and your cash forecast? This is really critical because a lot of churches have seasons of stronger giving, so you need to plan accordingly.

Homework

Ask for a copy of your church’s financial reports, get a cup of coffee, and dig in. If you aren’t sure what you are looking at, call in a favor and ask someone to walk you through it. Investing the time to get up to speed so you can be confident in reading your financials will absolutely pay off in the long run.

Interested in seeing the rest of the course? Sign up for the entire email course as we dive deeper into the subject of church finances.

Free Recorded Webinar: 5 Keys for Church Financial Stewardship

Understand some of the critical factors that make a church financially healthy, including your budget and giving practices. We discuss practical tools you need to see where you are at, and positive goals to aim for. In under an hour, you will learn:

• Principles of stewardship
• How to implement a stewardship plan in your church or ministry
• How to demonstrate accountability for managing your funds
• Why using reports and fund accounting can help you make strong financial choices
• How to monitor giving trends within your church to gauge financial health