by Franklin Dumond, Director of Congregational Ministries

Fiscal fitness and financial health are not only important for individuals and families they are also very important for local churches.

Here are a few measures of church fiscal fitness.

1. Income to Expense Ratios. Does total annual income meet or exceed total annual expenditures? If expenses occasionally exceed income this may be a sign of health as when a building program results in a major expense one year with funds generated in the previous year. Unfortunately, if expenses routinely exceed income by substantial amounts the church cannot remain solvent indefinitely.
2. Income History. Is the church plagued by a feast-or-famine mentality of giving to special needs at the expense of ‘routine’ ministry? If the folks respond only when the coffers run low this is not healthy.
3. Income Sources. Do estate gifts underwrite the operating budget? This is not wise! Are a few generous members providing a large portion of the operating budget? Fiscal fitness comes from a broadly supported ministry.
4. Income Percentages. Churches should expect to spend 40-65% of budgets on employee costs. Factory and retail managers cringe at this since in business the lower the salary percentage the higher the profit.

Educational institutions cringe because, in their model of high-touch personal connections to students, up to 90% of the budget may be personnel-related.

A church spending too low a percentage on staff probably underpays or expects over performance.

A church spending too high a percentage on staff may under serve by reducing program ministry and mission outreach to cover salaries.

Newer churches or newer facilities often have mortgages. Fiscally fit churches generally spend 15-25% of income on regular mortgage payments.

Fiscally fit churches will give 10-15% to missions. In some cases, more will be given. Although there are exceptions, if a church gives more than 20% of its general income, much needed local ministry often goes undone.

When preparing a spending plan every General Baptist Church should consider three broad categories of expenditures:

• Our Work in the World — Missions
• Our Work in the Community — Local Church Ministry
• Our Work in Facilities — Buildings and Grounds

I. Our Work in the World—Missions

Within this category, General Baptist churches should identify their mission giving through the denomination, association, and local projects. Denominational mission giving through the church should be targeted for Unified Giving. Ideally, every church encouraging tithing by its members will in turn tithe to Unified Giving as a means of participating in the larger mission of the Church.

Other mission offerings and mission projects may also be included in this category and should then be funded by special offerings rather than the general giving of the congregation.

Association and Local Mission Projects are developed based on local needs and local traditions.

II. Our Work in the Community—Local Church Ministry

Within this category, General Baptist churches should identify the ministry targeted to the local community. Early in this list, there should be a fair level of compensation for the pastor and staff ministers. Compensation guides based on years of experience and education for the full-time pastor and based on hours of employment for the bi-vocational pastor are readily available from several sources

Professional expenses and personnel benefits should be fairly computed and listed as line items separate from base salary, housing, and self-employment tax.

Other local church ministries such as Sunday School, youth and children’s ministries, church office expenses, and worship needs will be included in this section.

III. Our Work in Facilities—Building and Grounds.

Within this category matters such as utilities, insurance, custodial services, maintenance, debt retirement, and property improvements should be considered. It is also prudent to develop a reserve fund to allow the church to accumulate the dollars needed for occasional high ticket items such as heating/air conditioning equipment upgrades, parking lot repair, or roof replacement.

A final section of the budget should include projected income. Tithes and Offerings should support the general work of the church. Special offerings or project income should support the special needs of the church.

The following parameters, presented on the Evangelical Council for Financial Accountability website, can be useful guidelines when reviewing local church budgets.

Salaries/Wages and Benefits — 45%
Facilities — 20%
Ministry/Program — 22%
International Missions — 6.5%
Domestic Missions — 4.5%
Addition to Cash Reserves — 2%

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”.

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”.