How To Tell If Your Have a Good Financial System
Our goal is to educate your church on things you can do now to lead your church to ﬁnancial health. We are going to share a little of what we’ve learned over twenty years in advising nonproﬁts and churches. We will discuss how to be good stewards, how to utilize your board or elders, and explore some best practices for overseeing your finances.
In this course, we will address the essentials you need to understand the financial health of your organization. By the end of this lesson you will know the tools you need to track your finances and steer the financial future of your organization.
To get us started, evaluating your financial health starts with your financial system.
Elements of a Good Financial System
An important element of stewardship is making sure that 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 ability to run reports? If you rely solely on one person to not only run reports for you but also to interpret them, I would suggest you spend a little time to get a little more knowledge about that so you’re not always waiting around.
Looking for a better accounting system that can rock your church’s fund accounting? That’s why we built Aplos Accounting. Shameless plug, but we would love for you to check us out and give us a try.
Tip: Want to learn more about implementing fund accounting for your church? Check out our email course on fund accounting for churches.
Want more? Check out this recorded webinar for best practices in church accounting: Common Pitfalls in a Church Accounting System
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?
- Activity logs for the bookkeeping
- Separate person that approves and signs checks
- Financial reports reviewed and approved regularly
- Bank reconciliations that lock down historic transactions and close periods
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. 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 a couple of the most common reports that your accounting system should be able to produce so you can evaluate what is working and if you are 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 the overhead and things you need to get the work done.
- Cash on Hand & Rainy Day Fund – How much cash is in the bank right now? Do you have a rainy day fund? These are questions that you need to be able to address as a nonprofit leader and have a good financial leadership.
- 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 till that absolutely has to happen to get that done.
- 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 that you’ll see in in fund accounting and other accounting things.
- Monthly Budget & Cash Forecast – Not your annual budget, but 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.
Want more? Check out this recorded webinar that breaks down five financial reports and how to read them in more detail.
Homework: Ask for a copy of your 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 your through it. Investing the time to get up to speed and confident in reading your financials will absolutely pay off in the long run.
Interested in seeing the whole course? Sign up here and we will send you the entire course through email and we’ll delve deeper into the subject!