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This is a guest post by our friends at Parable. Parable is a team of financial storytellers who help you place every dollar on mission.
Every church has an accounting system, whether it’s written down or not.
It’s how you organize, manage, and make prayerful decisions with the financial resources God has given you.
Sometimes, that system is to hope for the best and trust that your business manager will forgive you for losing your receipts, which we don’t recommend!
From our years of experience helping churches large and small manage their money, we have found that there are seven components every church needs to have a healthy church accounting system.
These processes protect your money and your people from mismanagement, fraud, and off-mission spending.
And we promise that once you get them implemented, you will feel saner, calmer, and more in control of your church’s money.
And you’ll feel inspired about how much more your church can do for God’s Kingdom!
7 Components of a Healthy Church Accounting System
1. Book Reconciliation
Reconciliation is the process of making sure the money you think you have matches what your bank account says you have.
It lets you see where your money has been in the past, and that gives you control over where your money goes in the future.
So your church’s money will stop controlling you, and you can start controlling it.
A quality bookkeeping software turns this data into graphs so you can identify month-over-month trends.
When you can see beyond the day-to-day, you can start having a broader perspective on the amazing ways your church can use its money for God’s mission.
Controls are the policies and procedures that aid in efficiency and accountability.
These are processes like having two sets of eyes for counting and recording weekly offerings, dual check signing, dual bill paying, and timesheet approval.
Controls make your accounting run smoothly because everyone knows what to do and who to go to with issues.
And that saves everyone time.
Church accounting controls also protect both your money and your staff.
They make sure your money can’t wander off to the wrong place via theft or fraud or just straight-up mistakes.
And they help make sure no one can accuse anyone of embezzlement because there was always someone looking over their shoulder.
Controls may feel annoying and unnecessary, but they help your church achieve its unique God-given goals by paving the path to get there.
And on a paved road, the ride is smoother, faster, and easier on your car than an unpaved one.
Payroll is complicated for churches. But it’s essential to get it right because if you don’t, workers can get slapped with big tax bills at the end of the year.
And no one likes that.
Tax allowances for ministers make church payroll especially complex. We’re talking about things like withholding for Social Security and Medicare, housing allowances, and taxing special gifts.
Add in distinguishing part-time workers as employees or contractors, and the tax effects of giving thank-you gifts to volunteers (and your eyes glazing over right here), and things can get messy real quick.
But your church can avoid all the messes by asking the right questions before issuing a single paycheck.
Get your payroll correct from the start—that way, no one feels frustrated, and everyone feels like the church cares about them.
4. Bill pay
Bill paying seems simple: You receive a bill, you pay it.
But for churches, a healthy bill pay component has checks and balances.
This is where church accounting controls come back in.
We suggest having two sets of eyes on each bill before it is paid. One person checks that the bill is accurate, and the other checks that the necessary money is in the bank.
This also makes sure there are no accidental double payments.
So you always know where your money is going, and you have the paper trail to keep everyone (and every dollar) safe.
And when no dollars slip through the cracks, your church can put every single dollar to use changing lives.
There are a million reasons why it’s easier to keep your current church accounting technology rather than switch to a new one. Like the fact that no one working in ministry ever has time. (And that’s legit!)
But the reason why you should switch trumps them all:
Investing time and money in great church accounting technology will save you way more time and money down the road.
Here are some of our recommended technologies for church accounting:
These technologies are all possible to implement on your own. And if you don’t have the time or expertise on staff, it’s worth paying someone to set them up for you.
The word “data” might make your brain switch off if you’re not a finance person. But “data” just means “information.”
Your data is information about the past that helps you make prayerful decisions for the future.
Ask your bookkeeper to present this data to you monthly:
- Monthly giving and any other income
- Monthly expenses
- Net operating income
- Cash on hand and how many months that translates into (we recommend 3 to 6)
- Number of donors
- Average giving per donor
- Average weekly attendee count
This information helps you identify trends and respond accordingly.
It helps you understand what’s going on with the resources God has given you so you can use every one of them for maximum Kingdom impact.
Data is your friend. Collect it and use it to make smart, prayerful decisions!
Strategies should always be informed by a combination of data (just friendly information!) and prayer.
For example, your data tells you your church has lots of attendees but few donors. Your leaders can use prayer, discerning conversations, and helpful numbers to make a strategic decision to teach about stewardship.
Or you realize a volunteer has been working 30 or 40 hours per week, and your church’s net operating income is way in the positive.
You can use your data to figure out if the church can afford to bring that person on full-time.
Then, your leaders can bring that before God to consider whether the church will make the strategic decision of offering that person a job.
Strategy is the big picture of how you can use your money to do what God has called you to do.
It’s when you take your information before God and ask for his wisdom about what to do next.
It’s when you think you see where God’s leading you, and you break the path down into steps to get where he’s calling you to be.
Strategy is the exciting part when you get to dream, and you know your dreams can become reality because you’ve done the work to manage and protect the resources God has given you.
Get Your Church’s Finances on Mission
What’s missing from your church accounting strategy? Download Parable’s free church financial toolkit to learn the fundamental questions every pastor needs to ask to create an accounting system that paves the way for God’s mission.