Church Budget 101

A church budget is a roadmap to help make planning your expenses easier. Many churches take a “use it or lose it” stance on money, 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” (NIV).

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Why Your Church Needs a Budget

Studies show approximately one of every two churches in America is in debt. 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.

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 (various ministries of the church, such as children, youth, counseling, adult, men, women, etc.)
• Church Expansion Expenses
• Debt

Church Budget Software

Having the proper software to manage your church’s budget is crucial. Be wary of for-profit accounting solutions like QuickBooks®. They may require extra steps and time to get the same results from a product that is made specifically for churches, such as Aplos Church Accounting Software. Aplos offers a true fund accounting experience that will save you both time and money by budgeting properly for your church.

Common Approaches to Church Budgeting

Rolling Forecast

Update your monthly budget at a recurring periodic interval to create a rolling forecast, such as one 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.

For example, if you budgeted for $10,000 of expenses at the beginning of the year for an event in June, but that event only ended up costing $2,000, you may want to update the church budget to reflect the difference. That way the budget for the remainder of the year is more accurate.

Or if you decide to hire someone midyear, and didn’t expect that initially when creating the budget, you may want to update your budget forecast for the remainder of the year. It’s important because your budget will change depending on actual activity.

Zero-Based Budgeting

This 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.

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

An annual budget refers to a 12-month period covering the fiscal year of an organization that is presented to a bank or board of directors. Think “set it and forget it.” The church’s 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

This is a comparison of the actual results during a period of time and the budgeted results, with explanations of significant differences. This type of reporting will help catch fraud when material differences are investigated as part of the process. This method can help you understand what the drivers are of a specific financial condition for your church.

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[Free Email Course] 5-Day Church Budgeting Email Course

Studies show 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? Find out in this course.