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By Michael Castrilli

Church Budget Methods: Take it from the Top!

Which budget method(s) do you use when you create your church budget?  How do you estimate revenues and expenses?

There are a variety of methods you can use to create an effective church budget. Three common techniques:

Let’s begin with top-down budgeting.

Top-Down Budgeting

I know it may be intuitive, but a top-down approach to budgeting is when resources are allocated at a high-level and the details are then worked out based on this amount of funding. To use a simple example, think about your salary. Each month, your employer gives you a salary but does not dictate how you spend that money. Unless a pay raise is on the horizon, you know how much money you have available to spend and you work out your budget based on that amount of money.

The same method can be applied to organizations. At certain organizations, a leader will establish how much money will be allocated for a given project and then the budget is created from that level of funding.   On the other hand, maybe you receive a donation from a benefactor and you are going to budget those resources using this method.

Like all budget methods, there are inherent advantages and disadvantages.

The advantage of top-down budgeting is that the method is relatively simple.  It does not necessarily require labor-intensive cost estimating because the overall amount of money that will be budgeted is established.  Using this method, money is then allocated to categories of spending.  One disadvantage to top-down budgeting is that you might be forcing or form-fitting various cost elements to meet your target.

Empowerment and Buy-In Go Together

Top-down budgeting can work really well when you know the amount of money you are willing to allocate or you have a set amount of funding being given by an external source. The key is to involve and empower others who will help you manage the budget so buy-in is established early in this process. As a general rule, if the top-down method is applied to budget formulation, it is important for those who are given responsibility for managing the budget to propose and justify enhancements or reductions for the budget they have been allocated.

A simple method would involve asking the Director to detail how she plans to spend the money AND allow her an opportunity to propose changes to the amount that has been allocated.  You may now be saying, “Ok, but staff will always seek more resources, right?” Again, this is where collaboration is so critical in budget matters. When staff members are empowered and know that they have input into a budget’s creation, it is much less likely that unreasonable requests are proposed.  Budgets that are developed secretly or through closed-door methods serve no one well and actually diminish staff morale. Top-down budgeting works well when those who will manage the budget are involved in the process.

Learn more about the benefits of church budgeting!

Photo Credit: David Holt London Flickr via Compfight cc

By Michael Castrilli

Internal Controls to Protect Your Church Against Fraud

Church internal controls are those processes and procedures, standard in the business world, that are used to ensure the proper handling of funds. In my blog post, Fraud Alert: 5 Tips to Protect Church Collections From Theft, I discussed some simple ways churches can protect against fraud.

Church internal controls are a form of checks and balances with church finances. If one person has sole responsibility for all financial tasks, there is no protection of the person (in the case of suspected fraud) or the parish, against claims of fraud. When internal controls (checks and balances) are in place, no one person or office handles all financial matters.

Solid church internal controls builds a culture of trust, collaboration and shared accountability!

Building on this theme to help churches guard against fraud, I wanted to share some tips that Dr. Chuck Zech, my colleague at Villanova University and co-author of our book, Parish Finance, shared in a recent article in US Catholic Magazine: 5 essential practices to get your parish finances in order.  It is a resourceful article that summarizes easy-to-implement tips for adopting an open, transparent, and accountable financial process to protect against fraud and build trust.

Read More Church Finance 30/30

By Michael Castrilli

All Pictures Are Not Worth 1,000 Words

To complement a church financial report’s narrative, a variety of church finance visuals can help enhance a report’s readability and accessibility. I define the term “visuals” broadly, including any graphs, charts, pictures, tables, even art that displays data to accompany a concept, topic, or method. The Chinese proverb, a picture is worth a thousand words, speaks well for the impact visuals can have on virtually any report. Alternatively, I also like to say in fun, when you put together a visual and the picture is not worth at least 250 words, consider not including it!

Open up any word processing, spreadsheet, or presentation software and you will find an endless list of visuals that you can use. However, remember that beautiful colors, stylish charts or graphs may make a report look good, the question is whether the visual adds value to the information being conveyed? Another key question – what is the goal of including a particular visual?

Opportunities for Church Finance Visuals are Endless – Choose Well

Once the questions above are answered, there a variety of visuals you can choose. Without the time in this article to describe every visual available, over the next series of posts,  I will discuss a few of the most common used in church financial reports.

As you can imagine, the choice of which visual to include for your particular situation will be subjective based on a variety of circumstances. There is not a one-size-fits-all solution, but there are some general parameters that you can use.

Pie Charts

Pie charts are useful when your goal is to present data on a category/topic as a percentage of the whole. Pie pieces can be easily arranged by color, shape, and highlighted to emphasize information.

Pie Chart Advantages

  • The pie chart is easy to read, understand, and people are familiar with this visual.
  • The pie chart is particularly useful to show relative proportions, or percentages of information.The use of colors and pie shapes display well any differentiation among categories.
  • The use of colors and pie shapes display well any differentiation among categories.

Pie Chart Cautions

  • Pie charts are often overused without regard to whether these charts are the best choice for displaying certain types of data. For example, a pie chart that offers no distinction between the data (unless this is a goal of your visual) does not add value to the report. If you have more than one data set, it can be difficult for people to look at multiple pie charts and make comparisons.
  • The recommendation is to use a pie chart when you have between three and seven categories, otherwise, the pie chart may become messy and confusing.
  • Avoid “miscellaneous” or “other” categories. These terms are confusing and can be misleading. If they are included, ensure that the definitions are clear.

Of course, pie charts are not your only choice. Learn the advantages and disadvantages of the infamous bar/column charts and line graphs!

Read More Church Finance Tips

An evening picture of the Basilica of the Sacred Heart of Paris
Basilica of the Sacred Heart of Paris, France

By Michael Castrilli

The Vocabulary of Performance Management

My experience with performance management terminology is that various organizations use different ways to describe terms. For example, some organizations do not make distinctions between performance measures and targets or between measures and metrics.

You will notice, there is no universal description of the performance management terms discussed below, just some general guidelines and best practices. Like many parish management concepts the key is to ensure that you have defined and clarified terms.

To assist us in the process of reviewing terms, it may be helpful to think of these concepts in a flipped pyramid structure (Figure 1).   Each layer of the structure builds upon the other.

Performance Management Pyramid

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By Michael Castrilli

Budgets Are Not Good-Looking Shelf Documents

The one financial related shelf document I’d like you to have is our book, Parish Finance — otherwise, your church budget should be in your desk, not on your shelf! I am joking about the book, but not about the budget!

Tip 8: Keep the church budget at your desk, and not on a shelf!

Often, the budget is prepared, discussed, approved by a Finance Council or Vestry, and entered into the accounting system. After the fiscal year starts, budget reports are generated either monthly or worse, quarterly.

However, there is a problem. Budget reporting and review processes often miss the most important value-add that the budget brings to an organization. Along with being the plan for revenues and expenses, a budget should be used as an active management tool to review whether church finances are aligning to the pastoral priorities outlined in the budget development process.

The question I’d like you to consider is, “How is the budget used as a tool and not just a monthly revenue and expense report?”

Most budget reports show a series of columns that usually include at least the budget plan and actuals for a given time period. When budget management is merely mechanical, it loses the most important power of budgeting – helping you manage priorities!  

As the pastoral leader, I am not (necessarily) recommending that you need to check the budget every day, but, at least at regular intervals, answer the question, “Is the budget meeting the priorities we outlined when we created it?” 

Stay Tuned – More to come on this topic when we discuss budget execution and control in the coming weeks!

Questions/Comments? Email Mike Castrilli at mjcastrilli@gmail.com!

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