by Franklin Dumond, Director of Congregational Ministries

It was a cold winter day some years ago. I must have had the boys with me for lunch that day at one of the local fast-food restaurants. The place was rather crowded. This was long before pandemic restrictions reduced seating capacity! We found a booth and landed with a tray of food.

Just as I sat down I recognized two older ladies from one of the small churches just north of town. They were seated at the booth behind us. They could not see out our direction so their conversation was not interrupted by our arrival. While unloading the tray and passing out sandwiches and drinks I could not avoid overhearing part of their conversation. Apparently, there had just been a business meeting at the church the evening before. One of them remarked, “I’m so glad we were able to pay all the bills this month.”

This little church had fallen into the trap of paying bills as they accumulated. They probably voted on each payment to give permission for the treasurer to write the check. Their simple financial strategy consisted of paying the bills when money was available.

Just like every household, every church has a spending plan. Most churches and many individuals use a spending plan that anticipates future expenditures based on past experience. Most churches write down this spending plan in a budget that is prepared in advance by church leaders and approved by the congregation.

Even churches without a budget document have a spending plan. Often this is a plan that operates only out of current cash flow, so if we have money in the bank we spend it. This plan often reacts to felt needs and the current balance in the checkbook. This approach can have serious shortfalls.

• First, this approach may only meet emergency needs or very basic essential needs as the mindset can become “We only spend when we have to spend!”
• A second drawback to only operating out of cash flow is the failure to plan for future needs.
• The most serious drawback to only operating out of cash flow is that this approach may keep the church on a hesitant spending plan because the objective too often becomes one of maintaining a cash balance rather than one of meeting needs.

4 Kinds of Budget Plans

For churches with a written or published budget, there are at least four kinds of budgets.

1. Zero Based. Zero-based budgeting reduces all line items on the budget down to $0 at the end of the year and then rebuilds the budget based on needs and accomplishments. In a practical reality where utilities, insurance, and building maintenance cannot be reduced to $0 there really is no such thing as a true zero-based budget.
2. Year to Year Carry Forward. This kind of incremental budgeting assumes that we will continue to do what we have already been doing with necessary adjustments to ensure that we continue to fund what we have always funded. Some years ago I managed a local community utility assistance program. The program was funded by a Federal grant. Interestingly this program had originally been intended only for a one-year life. The heading on the grant form indicated, however, that this was the 17th renewal of the one year program.
   Incremental budgeting often starts with last year’s budget and says, “Let’s bump this up 1%.”
3. Faith-Based. Many visionary leaders advocate for a faith-based budget. This kind of spending plan projects costs without realistic projections of income. If there are more visionary influencers in the congregation than those with an administrator mindset the church may choose to overextend itself with new programs, expensive building additions, or excessive staffing. In these cases a financial crash is likely. It is also likely in these cases that the church will not recover from the financial crash.
   One variation of the Faith-Based Budget is an A and B Budget. In this plan, basic operations are identified in Plan A. Expansive programs or new ministries are included in Plan B with the provision that Plan A is funded fully before Plan B is activated.
4. Hybrid Budget. In this case, realism requires that some line items be carried forward since things like utilities and insurance will be just as essential next year as they have been this year. But other categories may identify programs or ministries that were only designed for one year or that no longer serve a purpose so they are ended or replaced with new endeavors.

First Steps to a Church Budget

Whether planning for a budget for the first time or starting early on next year’s plan there are a few starting points that will make overall development easier.

Take a look at the totals from the previous 12-month income/expense reports. Extending the year-to-date rate of expense or income to project a full year may be valid but it may not pick up on seasonal fluctuations that will be identified in a full 12-month review. For example, some property insurance premiums are paid annually. If that one-time expense has not yet been paid this year then projecting the zero expense on the insurance line item will not be accurate. On the other hand, some churches have a tradition of year-end giving that will not be identified in the year-to-date report.

Salaries are likely to be a major item in most church budgets. Salary packages should be reported by the component items that make up the total package. Base salary, what the employee lives on, includes take home, tax withholdings, and employee contribution to retirement and health insurance. Social Security withholdings, health insurance, and retirement should show as separate line items. These are benefits, not bonuses!

Consider income trends both in the community and in the congregation. Currently, some parts of the country are seriously impacted by the pandemic with above-average unemployment. In other parts of the country, employment has hardly been impacted.

Allow flexibility. Budgets are best-guess projections and though they are generally pretty accurate, on other occasions the best-guess can be wrong. Who can predict a severe winter with several weeks of weather-related cancellation and skyrocketing heating bills?

Jesus advocated advance planning, so let’s take His advice.

“Suppose one of you wants to build a tower. Won’t you first sit down and estimate the cost to see if you have enough money to complete it? For if you lay the foundation and are not able to finish it, everyone who sees it will ridicule you” Luke 14:28-29

Ready for the next step? Then download our e-book “YEAR AHEAD PLANNING: GETTING READY FOR 2021“. YEAR AHEAD PLANNING is a Church Talk Publication designed to help stateside General Baptist leaders cope with the “new normal”.