Financial Planning: Annual Budgets
For those churches whose financial year coincides with the calendar year, it’s that time of the year…how are your financial plans for next year coming along? For those with a different financial year-end, hopefully, this is a useful reminder.
Some considerations.
Why do it?
Why go to the bother of preparing an annual budget?
- Budgets focus the trustees on the church’s objectives.- I suspect that if asked, trustees would say that the church exists to spread the gospel to their local community and beyond, fulfilling Christ’s great commission in Matthew 28:19. That being said, how is that objective to be achieved? What resources will be needed? What initiatives are prayerfully being planned for next year to ensure the objective is met?
The annual budget should identify resources needed, and their likely cost and will provide a focus for the trustees.
- Budgets serve to allocate limited financial resources. In most, if not all, churches, financial resources are limited and must be prioritised.
- Budgets are a means of evaluating financial progress throughout the year. Monitoring finances during the year is essential if cash flow problems are to be avoided. An annual budget provides a benchmark against which actual income and expenditure can be compared.
- Careful financial planning reduces the risk of nasty surprises. The unexpected is a fact of life, and whilst there will be unplanned expenditure requirements or unforeseen reductions in income, realistic annual budgets can minimise the effect of such risks.
Key Elements
There are several key elements, the financial building blocks of an effect budget, summarised as follows:
- The likely financial position at the beginning of the new financial year. What funds are you likely to start the new year with?
- What income might be received during the year? This will contain several important factors, including.
- Planned giving from members
- Weekly collections and small cash donations, including contactless giving.
- Income from fundraising events.
- Single donations and legacies
- Grants for special projects or initiatives
- Income from the hire of church buildings
- How will the anticipated income be used?
- Basic expenditure on administering the church and operating costs.
- Salary and employment-related costs.
- Costs associated with mission and ministry to the local community and beyond.
- Repairs and maintenance of church buildings
- Estimated expenditure on projects or initiatives.
- What other financial issues might there be? – These might relate to proposed mission-related initiatives or provisions for major repairs and maintenance to buildings.
- How will the church’s financial state look at the end of the period?
Will there be anything left at the end of the year? Might there be a deficit? If so, are there sufficient reserves, or must an item of expenditure be deferred? In these circumstances, communicating the likely situation to the membership is essential including perhaps a challenge to consider increasing planned giving.
Timing
As treasurer and the personal responsible for preparing and submitting the budget to the trustees, it is important to have sufficient time and avoid rushing the process.
Suggested key stages are as follows.
- Review the current year’s finances at the end of the third quarter of your current financial year. How are you doing? Based on this, what’s the projected outturn for the year?
- Have the trustees agreed on the priority objectives for next year? These should be agreed upon as early as possible in the fourth quarter of the church’s financial year.
- Has income needed been identified, and any shortfall? This will follow on from the previous item once the resources needed to fulfil the objectives have been identified, including costing key expenditure items.
- The draft budget should be presented to the Trustees no later than the first week of the final month of the church’s financial year. This should provide sufficient time for amendments and a revised budget to be agreed before the start of a new financial year.
Summary View
At its basic, budgets are not only an indication of a business-like approach to managing church finances but are also a reflection of good stewardship.
Budgets are also biblical. Jesus’ own example in Luke 14:28, NIV: “Suppose one of you wants to build a tower. Will he not first sit down and estimate the cost to see if he has enough money to complete it?
The consequences of not preparing budgets are frequently catastrophic.
