Planning Your Church Budget

When people are reminded that budget season is just around the corner, most are likely to feel a bit of dread or unease. Most of us don’t like the thought of expending time and energy on financial plans, and for those of us working in churches or organizations where money is tight, the thought of working through financial projections for the coming year can bring feelings of burden and angst. Ideally though, the budget process brings peace of mind because it allows us to be good stewards of our Lord’s resources through solid planning and through regular reviews, comparing actual results to the budget throughout the fiscal year.

What is a budget?

A budget is simply a financial plan for a period of time. It consists of expected income—offerings, rent from facility use, and wherever else money comes in—and planned expenditures—mortgage payments, salaries, and all of the other ways money is spent.

In my mind, budgets should be flexible, not rigid. As circumstances change during the fiscal year—more gifts come in than expected or health insurance costs increase more than planned—the budget should be adjusted to reflect those real-life changes.

For those of us with staff members who have the right to spend the church’s money, setting a budget provides parameters within which they can do so. This grants them the authority to spend money for their ministries, up to a preset limit.

How do I build a good budget?

Typically two approaches are used to build a budget. Traditional budgeting, also known as incremental budgeting, consists of adjusting the individual line items from the previous year by a percentage or dollar amount that seems reasonable. While this approach is expedient, it is not as thorough or accurate. A better approach is known as zero-based budgeting, a process in which each line item is built from the ground up, starting with zero rather than the prior year’s budget.

Ideally, we take time each year to set goals and define objectives that allow us to move toward accomplishing our mission. A good budget allows us to be our most effective in achieving annual goals for our church. To help ensure those goals and objectives are met, our financial plans need to include necessary and related revenues and expenses.

Involve as many people as possible in the budget-building process in order to garner buy-in. If each staff member takes some sort of ownership over the budget, they are more likely to respect it throughout the year.

The following parameters, presented on the Evangelical Council for Financial Accountability website, can be useful guidelines.

What do I do with it after preparing it?

Once the budget is prepared, it must be “worked” throughout the fiscal year. In other words, each month a comparison must be made between the budget and how much is actually coming in and going out. Ideally, this comparison is done not just for the most recent month, but also for the total of every month up to that point in the fiscal year.

This process allows early identification of which line items are deviating from the financial plan, and steps can then be taken to alleviate those variances. If some of the income line items are exceeding the plan, then perhaps spending increases can be considered, but if they are less than what was budgeted, then spending decreases might be in order. Conversely, if actual expenditures exceed budgeted amounts, then investigate to find out why and follow up with appropriate steps to get spending back in line with the plan. However, if the negative variance makes sense, then take steps to increase the budget for those items, perhaps moving the budget from another line item or simply increasing the budget for that line item if funding allows.

A budget is a useful tool to effectively use the resources God provides. As leaders, it is up to us to keep realistic parameters when working with our budget, to get everyone involved to create a sense of ownership, and to continue to work the budget throughout the year to ensure we are being wise stewards.

You also might want to check out this simple budget spreadsheet; it might be helpful in preparing or administrating the budget for your church.