Estimated reading time: 6 minutes
God blesses churches with tithing members to provide the resources to do the work of the ministry.
As church leaders, we need to recognize that being good stewards of those resources is a significant responsibility – that should not be taken lightly.
Churches use operating budgets to plan and control spending. This control ensures church leaders manage the money and have the necessary resources for ministry priorities.
Consequently, creating a budgeting process can help to ensure that dollars are allocated to those things that help fulfill the church’s mission and vision.
Unfortunately, there are a surprising number of organizations that don’t operate with a budget because of the perceived value of taking the time to prepare and monitor it. This is concerning because unchecked spending can lead to a church dying.
Budgeting Basics
Budgets are used for both planning and control. Planning requires high-level decisions about priorities that line up with a strategy.
Controlling ensures that management implements what was planned and achieves ministry objectives.
Planning is futile without control over spending, and without planning, there are no targeted objectives to achieve.
Budgets set targets for revenues and spending and establish a plan for how the church will achieve its short and long-term strategy.
The budgeting process makes estimates of revenues, plan expenditures, and restricts spending that is not part of the plan.
Operating budgets typically extend out for one year and are divided into four quarters.
The quarters are then divided into months, and the budget review of gains, losses, and variances is done monthly.
Budget allocation is based on historical performance and church priorities. Operating expenses are organized and controlled by the different levels of management.
For instance, the youth pastor will have responsibility for expenses related to the management and development of the youth program.
Manager performance is based on how well their department budget is controlled. These budget managers are held accountable for variances between the budget and actual results.
The Budgeting Process
The budget review committee or church board establishes the global budget with revenue projections and allocates dollars to individual departments.
The individual department managers are responsible for creating their own budget need estimates based on goals and allocated resources.
Allow individual department managers to prepare their own budget estimates. This delegation of responsibility will result in the manager being more accurate and accountable for budget estimates.
The advantage to this budgeting approach is the working manager is more apt to follow their own budget.
Managers who participate in setting their budget will have a working understanding of the reasoning behind it. This approach works much better than a manager that given a budget handed down to them from above.
This step adds a layer of accountability in that the manager can blame no one but themselves if they fail to meet the budget requirements that they recommended.
Approval Process
Once these departmental budgets are prepared, they are submitted to the next level of management for review and approval.
Top management sets strategy and goals, then managers and supervisors estimate budget requirements needed to accomplish the strategy.
The budget is established and sent back up the ladder for review and is negotiated back and forth until a final budget is approved.
Common Manager Concerns
Department managers are often caught in the middle and express some common concerns with budgets:
- If I don’t spend all the budgeted dollars this year, will I lose it next year?
For example, facilities has $10,000 budgeted for snow removal but only used $7,500 because of a mild winter. Should facilities be given $10,000 for the budget next year?
- If I overspend my budget, will it be reflected on my performance appraisal?
For example, a severe winter caused the snow removal budget to be overspent by $15,000. Is the facilities manager responsible for this variance?
- I don’t want budget restraints to impact employees, customers, or improvement efforts.
For example, if the scanning system for children’s ministry check-in breaks and there are no dollars in the budget to replace it, the employees and parent experience would be affected. Is this an acceptable variance?
- If there is too much focus on budget control, it can take the focus off of non-financial goals and targets.
For example, if the children’s ministry manager is more concerned with controlling spending than making sure her department meets the needs of the parents (customer), the priority to have a positive customer response from parents may be challenged – there needs to be a balance.
6 Reasons Your Church Needs A Budget
1. Planning
Achieving objectives does not happen by accident. It takes a plan, supported by budget dollars, to achieve the strategy.
The budgeting process encourages churches to plan and set goals that provide a structured process for funding church-wide initiatives.
For instance, let’s imagine that your church has a 2022 goal of expanding an international missions program. This program would require budget funds. The plan and the goals will help to establish funding requirements.
2. Evaluation Of Performance
When goals and objectives are budgeted, they can be used as tools to evaluate employee performance.
Department managers have responsibility for their budgets. Their ability to plan and control that budget is an area of evaluation on a performance appraisal.
3. Strategic Allocation Of Resources
Budgeting helps to facilitate strategic plan implementation by allocating resources to church priorities.
The strategic planning process identifies areas of priority. These church priorities require budget dollars to get them done.
4. Elimination of Turf Wars
Budgeting eliminates turf wars over spending and available resources.
Department managers often petition for increased budget dollars for their areas. A budget clearly allocates dollars to each department, which controls the tug-of-war over financial resources.
5. Global Understanding of Resource Allocation
Budgeting improves communication throughout the organization because everyone understands what the priorities are and what resources are allocated to them.
A budgeting process should include global communication of the final budget. This process allows all managers to see what is allocated to each department so that everyone understands what focused resources will be used for.
6. Responsible Stewardship Of Church Funds
Discipline and planning are the cornerstone of a church budgeting process and are critical to good stewardship of church funds.
Churches operate with limited resources. A budget ensures that budget dollars are spent solely on church priorities and eliminates the possibility of irresponsible spending.
Budgets Support The Plan
As with most things in managing a church, budgeting needs to support the vision and strategic plan.
Churches that stay focused on their strategy and plan, know exactly where they want to spend their resources.
This plan helps to keep them from spending in areas that do not line up with the vision.
For example, does spending $100,000 on a new sound system for the church auditorium line up with church strategy?
How would your church answer this question?
Managers face spending decisions every day.
And, unless decision-making is based on budgeted dollars, it can be easy to overspend ministry resources.
Managing a budget is a skill that all managers can learn and develop.
Part of that development is having a good understanding of church priorities so that all spending decisions are made in accordance with the vision and strategic plan.
Learn more tips for managing your church by enrolling in our Fundamentals of Church Administration Course.
