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Church Finances Part I: Budgeting Tips

Church Finance Basics

Prudently planning your ministry finances plays a significant role in meeting your ministry goals. As your church plans its 2014 goals and budget projections, it’s important to ask the right questions. This will help you identify and accurately determine budget line item amounts so your church finances stay on track throughout the year.

1. Determine where you currently stand.

What are our current expenses?

Look at predictable expenses first, such as personnel, rent/mortgage, utilities, and administrative costs. For recommended percentages for these items, check out Navigating the Church Budget. This is also a great time to review equipment and property lease agreements as well as other vendor contracts that may be up for renewal. Consider taking time to negotiate with vendors for more favorable terms and pricing early in the budget process.

Next look at current ministry expenses according to your church’s organizational arrangement and budgetary needs. If you don’t have a structured budget that accounts for all ministry areas, we invite you to download our free budget template.

What is our current monthly revenue?

Include all sources of income: tithes, offerings, rent, tuition, etc. Use past financial statements, the general ledger, cash receipts, journal, and deposit records to get an idea of historical giving. Having monthly or quarterly financial statements greatly aids in planning the following year’s budget.

What is our monthly cash flow?

Determine cash flow by subtracting expenses from revenue. This number should be positive for each department and the church as a whole. This is the amount you have to work with each month to accommodate unexpected expenses and build cash reserves.

2. Determine where you’re going.

Do our financial policies still work well?

Annual budget planning is a good opportunity to review current practices and policies and make changes as needed. Do any accounting procedures need updating? Is there a recognized system of accountability? Does the record keeping conform to generally accepted accounting principles, known as GAAP? Is it time for a professional audit?

What is our projected income and expenses?

A recommended best practice is to start your budget at zero and then allot amounts for your income and expenses according to need. Learn more about zero-based budgeting.

As you project income for the next year, be sure to differentiate between restricted income (income designated for specific purposes) and unrestricted income. Then look at current attendance trends in conjunction with historical giving data to project future giving. Allow for seasonal fluctuations—many churches experience a decline during the summer and an increase in December as tithers make year-end contributions. Finally, consider the potential impact of local economic fluctuations.

In projecting certain expenses, creating an asset depreciation schedule is a highly recommended best practice. Keep a running log of all depreciable church assets, such as furniture and computer equipment, to estimate when they may need maintenance or replacement. Then determine an adequate reserve level, maybe 5-10% of revenues, to build up a reserve account for such costs. Doing so will help avoid incurring unnecessary debt and maintain positive cash flow.

This is the time to consider salary increases, hiring, layoffs, new programs, capital projects, and major fundraising efforts or campaigns. In addition, you’ll need to identify any expected increase in expenses, such as insurance premiums. All of these things will help determine your projected budget for the coming year.

What are our goals and objectives for 2014?

In general, it’s best to begin church budget planning as early as October to give adequate time to plan, with the goal of having everything finalized by January 1. Although the planning process looks slightly different for each organization, many churches rely on their staff to recommend specific goals and departmental objectives. Give clear instructions to all department leaders about making budget requests. These can include a written statement explaining how the requested amount will support continuing and new ministry goals of that department as well as the overall mission of the church. Leadership can then assess the requests to determine final budget needs for each department in the coming year. Ultimately, church leadership is responsible for approving and following a balanced budget that supports the church's God-given vision.

3. Monitor Your Progress.

Evaluate your budget monthly.

Hold ministry leaders accountable for budget adherence within their ministry area. Meet with leaders monthly to compare budgeted amounts with actual numbers. This will give you a clear idea of the church’s financial performance.

Keep the big picture in mind.

Even if projected amounts don’t match up with actual amounts every month, the most important thing is to maintain positive cash flow overall. Savings in one area could offset an unavoidable overage in another. Keep in mind that the budget is not set in stone, but rather it is a tool to help you reach your church’s goals.

Did you know we have a wide array of products and services to help you on your financial journey? Learn how we can help.

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