Church leaders have a lot to think about. In today’s fast-paced world, providing a place of worship for a community is about more than just giving a good sermon. In addition to considering the day-to-day logistics of running a place of worship, church leaders must consider the future of the church, ensure that congregants have access to the resources they need to get engaged with the community, and more.
In addition to these crucial considerations, one stands out as unwaveringly vital, especially in support of the others — the church’s finances.
Financial planning can seem like a daunting task, especially for churches that often must ensure donations are used appropriately and that they can weather whatever the future holds. A lot can go into financial planning for churches. It’s not just important to think about current funding and financial status — it can also be important to think about the long-term success of your church.
So what might financial planning for churches involve? What factors might church leaders consider as they aim to ready their churches for today and prepare for tomorrow? Let’s explore.
The Basics
At its core, church financial planning involves management and planning around current and future funding, as well as current and future expenses. It’s a multifaceted issue that demands attention in several areas. The basic building blocks of financial planning for any organization include:
- Funding: For churches, this often comes in the form of donations, tithing, and fundraising.
- Expenses: Church expenses can include everything from keeping the lights on in the sanctuary to providing charity services.
- Investments: This is funding that is allocated with the goal of accomplishing something, whether that is future funding or an expanded congregation.
- Asset allocation: This is how assets are used. Assets can be money, vehicles, properties, and more.
- Budgeting: This is a comprehensive practice that involves balancing all the other factors we’ve discussed and establishing a roadmap.
Church leaders must consider their current expenses and the expenses they’re likely to face down the road. Resource allocation also demands careful attention. Leaders must balance the need for growth and outreach against financial stability in the present and allocate resources and funding appropriately.
Reinvestment in the church can be a complex issue; the need for maintenance, services, and, ultimately, expansion must often be considered. Additionally, donations must be used for the purpose they were originally earmarked for, and church leaders must work to ensure transparent reporting of their finances.
Beyond that, leaders often must consider the efficacy of their investment efforts; funding that is intended for outreach should be effective in driving engagement and membership, or it can work to the detriment of the church financially. While a church is not designed to turn a profit, it must be able to sustain itself to exist over the long term.
Additionally, it can be helpful to consult with financial experts to allocate funding effectively and ethically, and to consult with tax and legal professionals to ensure that your church’s financial practices are legally and ethically compliant.
Budgeting
Budgeting is one of the most important considerations in financial planning, and for churches, it involves keeping careful track of expenses, both current and upcoming. Careful budgeting is about more than just tightening your belt. It’s about considering the future as well and ties directly into resource allocation. Budgeting for a church shares many common themes with any nonprofit organization, but specific considerations often must be made around church-specific factors such as outreach, charity, and church growth. There are several crucial components in a budget.
Income
This is essentially funding that comes in. It comes in many forms, and for churches, it often includes:
- Donations
- Tithes
- Fundraising proceeds
- Returns on investments
- Product or service income
It’s essential to carefully track where income is coming from for a few reasons. Donations may be earmarked or intended for certain purposes, and it’s essential to ensure the funding is put toward the proper use. Additionally, this can help with planning for the future and estimating how costs and revenue will stack up down the road.
Expenses
The other side of budgeting can broadly be categorized as expenses. Expenses can come from a wide range of areas, ranging from day-to-day operations to outreach and community involvement. For churches, expenses might include:
- Personnel (salaries and benefits)
- Facility costs
- Facility maintenance costs
- Church growth
- Community Outreach
- Charities
Crucial Budgeting Processes
There are a few vital processes that church budgeting typically includes:
- Needs assessment: This is the process of determining the church’s financial needs. In other words, what are the goals the budget attempts to meet? Does the church need a new sanctuary? More congregants? Do you aim to increase the reach of your charitable services? Does the sanctuary badly need repairs? This is the process of systematically outlining the needs your budget will aim to cover.
- Forecasting: This is the process of attempting to estimate future finances — upcoming costs, future funding, and what the long run looks like. Because churches can face fluctuating budgets and funding, it’s important to remain mindful of the future and plan ahead.
- Transparency: For nonprofit organizations like churches, transparency in budgeting and finances is essential. Another essential budgeting process is financial reporting — to congregants, stakeholders, and the public. This ensures transparency in finances and encourages the responsible allocation of funding.
- Tax and legal compliance: Intimately related to transparency practices, this is the process of ensuring that church finances are legally compliant, taking into account factors such as tax laws for nonprofit organizations. The risks of noncompliance can be severe, ranging from financial penalties to the loss of nonprofit status.
Resource Allocation
Resource allocation is a complex topic, and for churches, it can be about more than just identifying costs and applying funds. There are a number of factors to consider, such as whether donation-related funding is earmarked for specific uses and the long-term growth and viability of the church.
For businesses, the goal might be to make money, but for churches, the goal is often extra-worldly. In other words, your goal probably isn’t making money, but it’s necessary to consider how you’ll be able to fund your goals, such as charitable giving, spreading the word, and outreach efforts, on top of day-to-day operational expenses like keeping the lights on and the water running.
That’s why resource allocation is so important and often represents a vital consideration. In addition to ensuring that day-to-day expenses are addressed and paid, you may face the question of where to invest the most funding. For example, if one of your goals is growing the church, you may consider the relative effectiveness of various approaches — like community outreach, renovating your place of worship, or investing in an online presence.
The goal of careful resource allocation is to ensure that you can achieve your goals efficiently with the resources you have. In tandem with careful revenue forecasting efforts, the aim is to equip the church to take on its goals effectively.
Churches also must consider using donations intended for specific purposes. These are known as designated funds, and using them for their intended purpose isn’t just an ethical obligation; it’s a legal requirement. This can necessitate careful planning to maximize the effectiveness of funding. To that end, a common strategy is first applying earmarked funds to their intended purpose so additional spending can retain a higher degree of flexibility.
Long-Term Strategies
While we’ve discussed many short-term considerations, such as current budgets, allocating funds, and tax compliance, another vital consideration for churches is their long-term goals and strategies. For churches, finances aren’t an end but a means to achieving spiritual and community goals. That’s why it’s important to factor in the church’s long-term goals and strategize accordingly.
Budgeting for the Future
This might be considered a subset of resource allocation, but churches with long-term goals must plan for the future to meet them. This involves budgeting with current and short-term expenses and long-term financial goals in mind. For example, if you hope to expand the church physically, it may be prudent to establish a fund to that end and include contributions to that fund in your operating budget.
Consulting with Financial Experts
Consulting with financial experts such as licensed Certified Financial Planners is about more than just making prudent decisions. It can be an ethically sound strategy too, when done with the intent to ensure that funds are allocated in a manner that benefits the church and its members and stakeholders. A Certified Financial Planner may be able to help you plan for the future, make wise decisions, and safeguard the church’s ability to weather future uncertainties. Consulting with an experienced and trustworthy financial planner can be helpful in resource allocation, budgeting, and long-term financial strategizing. Remember, this article is intended to offer general educational information and should not be construed as financial advice. Consulting with a financial professional is advised.
Final Thoughts
Like so many well-run organizations, churches must institute and manage financial structures and rules to be sure they have the resources they need to achieve their goals. Church stewardship is a vitally important task for churches to manage the funding, expense, investment, resource allocation, and budgeting processes to ensure their financial health. Don’t go it alone! Your church can prepare for the future by turning to financial experts and using The Complete Guide to Church Stewardship for help creating a comprehensive financial plan.
Vanco
Vanco is a trailblazer in the world of digital giving, dedicated to empowering faith-based organizations with effective financial solutions. For over 20 years, Vanco has been at the forefront of creating innovative giving tools, earning the trust of over 25,000 churches and faith-based groups. To learn more about Vanco’s church giving tools and how they seamlessly partner with ACS Technologies’ church management software programs, click here to learn more.
