You want to do more to spread God’s word but for many churches, the ministry is largely dictated by finances.
Without a solid budget in place, even a sizeable income can still lead to problems.
A budget is one of the most important plans your church can create. It’s also one of the most stressful, especially for staff who aren’t trained in finance.
For smaller churches, it’s very common for finances to be overseen by a staff member or volunteer who’s also juggling other roles and commitments.
This level of responsibility can feel highly daunting but we’ve got you covered. We’ll walk you through what to think about when you’re putting together a budget for your church.
1. Laydown the Groundwork
Before you create your budget, lay some groundwork to make sure you’ll get the most from it.
Here are some of the areas to consider:
1.1 Assess Previous Data
Look back over the previous 2-3 years of financial data to spot patterns in income and expenditure.
Questions to ask can include:
- How much are you spending on personnel, facilities/equipment, and administration? If these areas account for more than 45%, 30% and 10% of your spending respectively, you likely don’t have much room for spending in other areas.
- Does your church typically pay all of your expenses on time?
- Are there reserves you can dip into if needed?
- How many donations does your church receive?
- How many of these are recurring donations that your church can rely on to even out seasonal fluctuations in attendance and giving?
- How much does the average member of your church donate? (Donation software such as Donorbox can help with this!)
- Are there any significant fluctuations in attendance and giving?
Pro tip: If you’re not already using donor management software to track donations, you may find it challenging to get precise donor data. With Donorbox, you can streamline your church’s fundraising activities, set up recurring donations, and improve donor management — all of which are extremely important for growing your church.
A fundraising roadmap can help organize your strategic goals and how you’ll work towards them. Check out our blog post on creating a fundraising roadmap for tips on this.
1.2 Make Budget Cuts (If Necessary)
Once you’ve assessed your income and expenditure, you may be able to see areas that could be streamlined.
From your earlier analysis, you’ll be able to see how much are you spending on key budget areas, including salaries, administration, facilities/equipment, utilities, and ministries.
You’ll need to ask some difficult questions, particularly around ministries. This is why it’s very important to set goals before you create your budget since you’ll already have been forced to determine your strategic priorities.
A few questions to ask include:
- Are there some ministries within your church that are not effective or non-essential (in the short-term, at least)?
- Are there expenses you could cut and not see a difference in terms of results? Duplicate resources across ministries is a common example of inefficient spending that can be easily addressed.
- Are your proposed cuts likely to make any roles redundant?
Pro-tip #1: Unless your church is in severe financial trouble, it’s usually better to make one big cut per year. Making too many cuts at once can be destabilizing.
Pro-tip #2: If personnel is receiving bonuses, these may need to be cut. Unless you’re struggling a lot, avoid making budget cuts to salaries beyond this. Failing to invest in your people can have damaging effects on your church unless it’s a necessity for survival.
1.3 Set Goals For the Year Ahead
SMART goals are a good choice. They ensure your church is setting goals that can be measured and creating strategies to help you achieve them. They should be strongly linked to your church’s mission and vision.
Think about your church’s goals and objectives for the coming year.
SMART goals are:
- Specific – Vague goals are hard to implement and measure. Make your goals as specific as you can. If you want to grow your congregation, set concrete goals around this. Or maybe you’re looking to strengthen your relationships with your congregation, and you plan to reach out to a certain number of people each week as part of this. You can dig even deeper and specify how you’ll do this.
- Measurable – Goals that are easy to evaluate help you see the progress you’re making.
- Attainable – Your goal should be realistic to achieve — but not too easily! Think about whether you have the resources within your church to achieve your goal, particularly from a financial perspective. You may need to adjust goals to make them more attainable.
- Relevant – Does the goal tie in with your church’s mission and vision? Or is there a strong need within the community linked to the goal?
- Time-based – Since open-ended goals can be much harder to measure and achieve, look to set deadlines. It keeps you accountable to your goals and gives you a benchmark to use when measuring.
You may decide to focus on attendance, volunteer recruitment, or outreach, for example. Determining how you want to grow your church is a key step in organizing your budget.
Examples of SMART goals for churches include:
- Increasing your church attendance by 2% over the next quarter
- Reducing your church’s operating budget by 5% by June 15th
- Reaching out to 20% more people in the community by December 15th
- Recruiting and training 25 new volunteers this year
1.4 Appoint a Finance Person
Make sure someone is keeping a close eye on the finances and can account for every single cent that is spent. This person doesn’t need to have a finance background, but ideally, they’ll have a good working knowledge of budgeting.
Pro tip: You don’t need to hire a finance person on a full-time basis. For many churches, a part-time role will be enough. You could offer the responsibility to a trusted volunteer on a part-time basis, for example.
2. Budget Types
There are several types of budget your church can use:
2.1 Incremental budgeting
Incremental budgeting uses your previous budgets as a baseline for next year’s budget, with tweaks as necessary. If you make changes to ministries or outreach events, adjust the budget in line with your new goals.
2.2 Based budgeting
With this type of budgeting, everything reverts to zero, and every aspect of your church’s activity needs to justify its place in the budget. For churches that follow the same activity pattern year-on-year, it can provide a new perspective on finances. Typically, it’s done every few years. It’s a good choice for many first-time users, and most churches will benefit from using this approach.
2.3 Program budgeting
With this type of budget, all activities are assessed according to their performance. Anything that isn’t performing well needs to be critically assessed and cut if necessary.
3. What To Include In Your Budget
Keep track of all income your church receives — including online donations and other fundraising channels.
Pro tip: Keep separate income streams so they can be used for the intended purpose.
Salaries (including bonuses) will likely be one of your church’s biggest expenses. Some churches decide to pay lower salaries, but this can work against you. Your church’s people are your best asset, which is essential for your church to grow.
This category covers utilities, insurance, and church maintenance work. It’s an area of the budget that is often neglected by churches, but this can have adverse effects in the long-term.
If your outreach work is successful and you bring new members through the door, this area of your budget ensures they receive a good first impression.
Choosing which ministries are likely to be the most cost-effective is an essential aspect of church budgeting.
This is something to consider before you start creating your budget so you can prioritize the ones that will offer the most value to your members and the community.
Outreach should be in proportion to your financial situation and facilities. There’s little point in spending a large chunk of your church’s budget on outreach activities if your finances aren’t in shape or your church’s facilities need an upgrade. You’ll likely miss the opportunity to make a great first impression.
As your church grows, you’ll need to budget for expansion. This may involve upgrading your facilities or even building new facilities if your congregation expands to this point.
If your church requires a new building, budgeting for this can feel daunting. It’s not only the materials that need to be factored into the costs — there are also architectural, engineering, labor, and administrative fees to consider, for example.
Talk to your congregation about your plans. Some members may be willing to give more to support renovations or a rebuild.
Pro tip: Take advantage of Donorbox campaigns when you’re budgeting for building work. You can create a campaign specifically for construction work, which is separate from your main fundraising campaign(s). Since donation forms can have a goal meter to show your fundraising progress, donors can stay focused on helping your church reach the goal.
For smaller churches, expansion may not feel like a big priority, but it’s worth budgeting for the possibility. If you can put aside 5% of your budget towards future improvements and expansion, you can ease financial stress
Pro tip: Keep expansion funds separate so they’re not eaten up by other costs of running your church.
Fundraising software can help your church raise more funds and strengthen your donor relationships. Investing in software that can maximize your donor communications is also a smart move.
Keep a portion of your church’s budget for marketing, especially in the final quarter of the year. This is known as the nonprofit fundraising season, and it’s a significant time for donations.
To make the most of nonprofit fundraising season, put up to a third of your marketing budget aside for fundraising season and spread the rest throughout the year.
3.9 Building Reserves
Ideally, your church should have at least three months of reserves to fall back on — preferably more than this. At the very least, it’s smart to have reserves that can cover a month’s worth of salaries and key expenses.
Pro tip: It’s easy to overlook annual expenses since they aren’t regular outgoings — which can lead to some surprises when the payments are due. Be sure to factor your church’s annual expenses into your budget.
3.10 Paying Down Debt
If your church has at least six months of operating expenses in the bank, allocate some of your budgets to paying down any debt you may have.
Lots of churches ignore debt — especially if finances aren’t tight — but as a worst-case scenario, it can mean your church has to close.
4. Pull Monthly Budget Reports
Following your monthly budget will give you insight into ongoing expenditure and funds management. It can help you identify places where you may be spending unnecessarily, so you can decide to put a stop to it before it is too late. Similarly, your monthly budget will help you identify where you need to allocate your funds at the right time.
Pulling a monthly budget is very easy if you’re using donor management software.
With Donorbox, you can pull donation reports quickly and easily to see how your income stacks up against your budget.
5. Account For Seasonal Shifts
For most churches, there are fluctuations in attendance at certain times of the year. December usually sees a spike, for example.
When you create your church budget, factor these shifts into account and use them to avoid tough times.
During the “peak” times, you can budget to put more money aside for the lower-income months.
6. Have a Plan for Maintenance Work
You’ll likely need to do church repairs at some point and these can potentially be costly.
If you haven’t factored maintenance into your budget, it can also be financially devastating. Putting a portion of your church’s income aside for maintenance work can avoid financial headaches.
It also means you won’t need to hit the panic button if maintenance work is required. Churches that haven’t budgeted for repairs often need to lean more heavily on their congregation to cover the costs.
Over to You
There’s a lot to think about when you’re putting a church budget together, but it’s a vital process for safeguarding your church’s financial future.
A church management software will really help streamline your church’s administrative processes and at the same time manage your church’s budget.
With a budget and strategic plan in place, your church will find it easier to achieve your mission and vision. You’re also less likely to spend essential funds on areas that don’t align with your mission.
Here at Donorbox, we’re helping churches of all sizes to streamline their fundraising and maximize their finances.