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By Michael Castrilli

Communicate Church Finances with Impact & Ease

Does your church struggle with creating clear, understandable and transparent church finance reports? If so, you are not alone!

As churches balance the broad range of financial information that parishioners seek, they also struggle with what to report and how to communicate this information. Many churches offer financial reports that are inaccessible or downright confusing, while others report results in such a basic fashion that the data does not lead to any clear insights.

Even though studies show that communicating financial information to parishioners has a positive impact on stewardship and involvement, many churches either fail to see the linkages or become paralyzed by the options. Sadly, beyond the reporting of the end-of-year financial statements, a significant number of churches choose not to report any financial information.

A substantive church financial report will both engage and empower parishioners to understand their parish finances. However, creating this type of report can feel overwhelming, so let’s break down the process into manageable components.

Construct the Financial Narrative

Define the Goal and Audience

Two questions are critical as you begin to create any financial report, “What is the goal of the report?” “Who is the audience?” Answers to these questions are essential to help you as you craft the narrative. By understanding the purpose of why you are creating a report, you will have direction as to what you build.

For example, are you offering a high-level overview of revenue and expenses for the prior year? Or, is the report being created for the Finance Council as they help you prepare the annual budget? The answers to these questions will help guide you as to what to include in the report and the level of details that are needed.

What is important in this process is that you include all relevant information to help the audience achieve informed insights. There is a tendency to believe that the term “financial transparency” is defined as “the more information provided, the better the report.” However, this is not true if the information you communicate overwhelms or even distracts the audience from the most critical information. Just because you have extensive data does not mean that you need to include every piece of information in all of your reports!

Tell a Story

Mark Twain said the first rule of writing was “that a tale shall accomplish something and arrive somewhere.” I argue that that the same rule applies to creating financial reports. The best church financial reports have a beginning, middle, and arrive at a conclusion. The structure you can use for your narrative is to start with where the parish is today with finances. Next, offer any context from the past that can help inform the present situation. Finally, conclude the narrative by looking towards the future.

The Present – Where are we today?

Begin the report with a narrative that concisely describes the current state of finances for the parish. Typically, this will include a discussion of overall revenue and expenses compared to budget targets. For many churches, more than 80% of income comes from collections. Therefore, offer a status on Sunday offerings, donations, and discuss any changes in program income.

In the narrative, include a discussion of expenses. Were there any significant outliers? For example, did a massive snowstorm cause maintenance costs to soar? The narrative can also describe updates on staff changes, capital projects, debt obligations/payments, endowment/savings accounts, policy changes, and/or any programmatic updates.

The Past – Where have we been?

In the next section of the narrative, discuss how the financial situation today relates to the history of the parish’s finances? For example, if collections are lower than anticipated, consider any previous cases when this has occurred. Visuals in this section can be particularly useful to offer additional context or convey complex financial information.

The Future – How are we leading into future?

Conclude the report with a discussion of the future. Consider answering questions that may include, “What are the areas of growth at our parish?” “What is the plan for addressing any challenges in the future?” “What areas are we most grateful?” “Where do we see our future as a parish community?”

For example, if there has been a surge in parishioner registrations, discuss the opportunities. If a new staff member has been hired to work on a particular program, discuss excitement for parishioners to get involved. If new policies are being implemented to address a financial situation, write about what actions are being taken to deal with what has happened.

How do I find out more information?

At the end of the report, provide a point of contact (POC) with name, phone number, and email to address comments, questions, or concerns. If readers seek further information, they will have a POC that can offer additional details.

Read More Church Finance 30/30 Tips

Excerpt from my original article in the Villanova University Center for Church Management and Business Ethics Newsletter, “Communicate Church Financial Information with Impact and Ease” (Spring 2017).

picture of the outside of St. Paul Catholic Church in Philadelphia Pennsylvania
St. Paul Catholic Church, Philadelphia

By Michael Castrilli

Catholic Press Association Award for Parish Finance Book!

Michael Castrilli and Dr. Charles Zech of Villanova University’s Center For Church Management won second place at the Catholic Press Association Awards for their book Parish Finance: Best Practices in Church Management. The book won in the “professional books” category of the competition, which features books on professional development with a Catholic context. These awards recognize the meaningful contributions of authors and publishers of Catholic work. Parish Finance: Best Practices in Church Management authored by Michael J. Castrilli and Charles E Zech

“It is a true honor to be recognized by the Catholic Press Association,” said Castrilli, co-author of the book and Business Fellow of the CCM. “Our goal for this book is to offer a practical, user-friendly guide for priests, seminarians and parish managers to learn the essentials of church finance and we are excited to be recognized for delivering on this promise,” he continued.

The book was praised by the Catholic Press Association for being extremely well outlined and providing a helpful overview on how to develop, understand and implement a church budget. It was noted as being a valuable tool to those both familiar and unfamiliar with the development of parish financial budgets, according to the Catholic Press Association.

“The recognition given to this book by the Catholic Press Association provides further acknowledgment of the increasing awareness of good financial stewardship in parishes, and in fact at all levels of the church,” said Dr. Zech, co-author of the book. “We purposefully wrote it at a level of understanding for new pastors and seminarians which demonstrates that a priest need not be a trained accountant to understand parish finances in the process of carrying out his governance function.”

“The collaboration of Mike Castrilli and Dr. Zech will provide unprecedented guidance in the field of parish financing and VSB is thrilled that their work has been recognized with this prestigious award,” said Joyce E. A. Russell, PhD, the Helen and William O’Toole Dean of VSB.

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By Michael Castrilli

The Benefits of Church Budgeting

My experience working with ministers is that for many, developing a church budget is a necessary, yet stressful and time-consuming exercise. People resist or even fear the topic because of seemingly complicating processes or past negative experiences. Even with personal finances, many people grow up learning that developing a budget is good practice but a constraining activity designed to prevent or control people from doing all of the things they want to do.

So, why spend the time working on the church budgeting process? Below are six benefits:

Church Budget Benefits

The budget is the plan and tool that will help you…

  1. Connect resources to parish priorities
  2. Create a plan to allocate money coming into the parish and expenses to be paid
  3. Ensure that plans stay on track
  4. Empower effective financial decisions
  5. Bring collaboration, communication, and buy-in
  6.  Strategize for the future

By Michael Castrilli

Data + Goal = Church Budget Method

Church budgets come in all shapes and sizes. Trying to form fit a best practice to your church budget isn’t the right approach. All church budget methods, tactics, and tools that we discuss must be right-sized for your congregation. The same is said when choosing which budget method you will use to formulate/develop the budget.

As we have discussed previously, the budget formulation phase is when you gather relevant policies, solicit information from staff and parishioners, document assumptions, and project revenues and expenses.

With the formulation phase, there are a variety of methods you can use to build the budget. No method is intended as a one-size-fits-all solution. My recommendation is to pick a method, or a hybrid of methods, to build the budget.

Budget methods all have advantages and disadvantages so understanding what you are trying to accomplish is essential. To choose a method, ask the question, “what is the goal that we are trying to achieve as we build this budget?”

For example, are you clear on the amount of money you have available for a project? In this case, top-down budgeting might work well. Are you seeking to understand each layer of the budget more clearly? The bottom-up method may be the best method for this question. No one can answer these questions but you (and your staff), depending on the context of your situation.  My point is that to evaluate your options, know what your goal is, and then go for it!

As faithful followers of this blog (thank you!), you know that I have written about the advantages and challenges of a variety of budget methods. So as not to repeat content on the blog, feel free to read the short method descriptions below, and click the links for more information!

Top-Down Budgeting – I know it may be intuitive, but a top-down approach to budgeting is when resources are allocated from a high-level and the details are then worked out based on this amount of funding. 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.  Read More on Top-Down Budgeting

Incremental Budgeting – Incremental budgeting is the simplest technique to implement and is common across many churches as budgets are developed. Incremental budgeting involves determining a percentage increase or decrease in funding and then multiplying this percentage across categories. This technique has the distinct advantage of not requiring complex forecasting or cost estimating and can be applied across a wide range of data. The disadvantage is that you may be over/under-budgeting specific categories.  When budget categories are relatively consistent over time, this can be an effective method.

Bottom-Up Budgeting (Zero-Based Budgeting ZBB) – This method involves building a budget from the lowest income/expense elements and then rolling them up into the total budget request. From zero, each income and spending category is developed and justified. Read More on Bottom-Up Budgeting!

Read More Church Finance 30/30 Tips

By Michael Castrilli

Step-By-Step Strategy to Help Churches Hire A Contractor

Selecting a company or individual to do major work at the church can be overwhelming. From short and long-term impacts on money, time, and people, along with oversight responsibilities, resources are always limited (scarce). Investing in the right people, places, or things are critical for effective parish management.Cathedral of Notre Dame, Paris France

This post describes a step-by-step process churches can use for evaluating and selecting a vendor, contractor, or service provider. Recognizing this can be a complex topic, the goal is to break the process down into manageable parts. After learning the method, you can right-size the concepts to fit the needs at your church.

Examples, where you might like to use a selection strategy, include large–scale projects like choosing an architecture firm to put blueprints together for a parish facility or deciding which builder to hire for repairing the church roof. This type of process can also be used for major purchases like choosing which church management software to buy.

To simplify the terminology, throughout this post, I’ll use the words “contractor/vendor” as an all-inclusive term to include any external product or service being purchased by the church. For example, this term encompasses service providers (e.g. architecture firm, lawn care company), builders/manufacturers (e.g. construction company), Jane/Joe self-employed business, and/or vendors (e.g. church management software company).

Challenges

One of the main reasons selecting a contractor/vendor can be so complex in the church environment is that at times, the lines between pastoral care and business interest get blurred. Let me use an example of a local church that is seeking to hire someone to replace the roof.

Church Roof Replacement: The parish administrator made a presentation to the parish council on the need to replace the church roof. The estimated cost for the current roof to be removed and a new roof to be replaced is in the $100,000 ballpark. After the presentation, a member of the Council approaches the administrator and says, “My company would be happy to do this work. I’ll even try to get you a discount.” At first glance, this may seem like the perfect solution to the problem. However, going forward with this generous offer, without considering other options can be a major mistake.

How many stories have you heard where a parishioner (or their company) is hired for a project, there is a problem (maybe with schedule or cost) and then one party feels stuck with limited recourse. Whether it is the result of unclear boundaries or simply one party deciding to avoid conflict altogether, this can be a slippery slope. Of course, there are always exceptions, but, why risk misunderstandings, hurt feelings, and poor outcomes because no process existed to ensure that the right company, individual or product was purchased?

Creating a clear and transparent selection process benefits everyone involved. The process benefits the parish management team by creating a structure to make informed decisions. The process benefits contractors/vendors because all are fairly evaluated on clearly defined criteria.

Church Roof Replacement: Even though the parish administrator decides to hold off on accepting the parishioner’s offer, this does not mean that the parishioner’s company will not be considered for the job. If the company decides to put in a bid for the work, they will have to participate as part of the broader contractor selection process.

Selecting an Award Recipient

Let’s use a simple example to help understand how the process will work. Two teachers have been appointed to choose a winner of a student essay contest. The award is based on the following criteria: essay content, clarity of the student’s writing, proper use of grammar and the inclusion of a formatted bibliography. Recognizing that these criteria are not of equal weight, the teachers create a grading rubric that assigns points based on the relative importance of each criterion to the total grade.

Using the points system, the teachers then individually grade each student’s paper. When the grading is completed, the teachers average the grades and come together to discuss the results. 

Now imagine using precisely the same process with different variables and weights for contractor/vendor selection at your church.

Step 1 – Define Requirements

Typically, organizations will refer to the initial phase of buying anything (whether a product or service) as procurement planning. Procurement planning is the process of deciding what, when, and how to purchase (buy) goods or services. This process involves the development of documentation to solicit (request) quotations, bids, and/or proposals from companies or individuals to complete a program, project, or task. Like any investment at the parish, whether large or small, getting clear on goals, needs, and requirements is critical.

Church Roof Replacement Example: Depending on whether the replacement of the roof is an immediate or longer-term need, the parish administrator and pastor discuss the timing for initiating the project. They discuss and decide that the work should be completed by November so that the roof is protected for the winter months. They also discuss the desire to work with a company that has previously worked with churches and comes highly recommended from a neighboring parish.

By brainstorming requirements, you establish some guideposts for the next step in the process. If you are unsure where to begin, many dioceses have resources available to help parishes in this phase of the process. There are also organizations that offer tools and templates to assist churches with defining requirements related to procurement decisions.

Step 2 – Establish and Weigh Criteria

Once requirements have been developed, it is important to brainstorm and establish criteria to evaluate potential contractors/vendors. Like the example of the teachers creating a rubric for essay evaluation, what are the driving factors that will help you make the decision on which contract/vendor to choose? To determine priority weights, consider the relative importance of each criterion and the impact this criterion should have on the overall score.

 Some hints when developing criteria and weights:
  • Prioritize. Initially, you may have a large list of requirements and criteria. Take time to narrow the list down so that you have only the most critical items. Otherwise, you might fall into the trap of ‘information paralysis’ where it is difficult to differentiate any information.
  • Ensure that you have clear criteria definitions. Definitions will ensure precision around what has been developed so that you can return to this information in the future. Have you ever attended a meeting, a decision is made, and then a month later everyone gets back together and forgets what was decided? If this sounds similar, you are not alone; it happens in every organization.
  • Keep rating scales simple. Whether you decide to use a 1-100 (A+) or 1-10 (high) scale to rate proposals, simplicity will help reduce any confusion. You may also consider creating definitions for the scales. For example, “To receive a score of 10, the proposal must include X, Y, Z.”
  • Collaborate! Use a team approach and get others involved in this process. No need to let all of the responsibility for this process fall on one person. Allow this process to be a shared responsibility.

Step 3 – Solicit Bids 

Next, you are ready to seek contractors/vendors to bid on the work. The solicitation document that is commonly used to seek bids from service providers is called a Request for Proposal (RFP). The RFP will typically include answers to the following questions:

  • What is the nature of the project? What are the requirements and expected deliverables for the work?
  • Where is the location of the work? Who is the organization that is making the purchase?
  • How will proposals be evaluated and what are the submission guidelines?
  • When are proposals due?
  • Who is the main point of contact?

In the Catholic Church, many dioceses will also have particular laws (financial policies) in place that require parishes to participate in specific bidding processes. For example, some dioceses require that for contracts over a specific dollar amount, the parish must request bids from at least three companies. It is imperative to be aware of what diocesan protocols may be required when examining these issues at the parochial level.

Step 4 – Evaluate Proposals

Once proposals have been requested and submitted, gather the team, and score the proposals using the criteria and weights that have been established. In choosing who should take part in the evaluation process, consider key people that will be most involved in working with the contractor/vendor.

Church Roof Replacement: Companies A, B, and C have submitted proposals for the roof replacement project. The pastor, along with the parish administrator and a member of the church maintenance staff reviews the proposals and score them against the established criteria. Once the ratings have been completed, the group will gather to discuss the results.

There are many ways to tabulate the results, but a straightforward approach is recommended. Recall the method used by the teachers to grade essays in the example above. The process can be simple:

  1. Individually grade the proposals (essays)
  2. Average the grades per proposal
  3. Summarize and discuss the results.

Step 5 – Select Winner

Bring the evaluation team together and discuss scoring results for each proposal. At this point, the hard work you have completed in earlier steps of the process will pay off. You have all of the information you need to make a great selection decision.

Church Roof Replacement: Company A and B came out with the highest scores. After reviewing the information, the team decided to go with Company B. Although the bidding price from Company B was slightly more expensive than Company A, the differentiating factor came down to Company B’s excellent references and their extensive work with churches.

In this step, be sure to allow raters to confer on why they chose certain ratings for the various proposals. Rating or metric based systems are only one means of evaluation. Subjective data from individual experiences, organizational history, and general knowledge of a topic should never be discounted. The key is to bring people together, recognize and openly discuss any biases and celebrate the fact that there are always differences of opinion. “No one of us is as smart as all of us.”

Summary

Create a process, even a simple one, to evaluate and select contractors/vendors for major purchases of products or services. By defining requirements, establishing criteria, and developing a simple, yet clear evaluation and selection process, many positive results occur. First, the process will promote a spirit of equity, openness, and accountability both internally for the parish management team and externally for those working with the church. Second, although every decision will not have the same requirements, by following this systematic approach, you will have created a strategy that you can transfer and repeat for future purchasing decisions. Finally, the results of this process promote a church management structure that is efficient, effective, and transparent in conducting the business of the church.

This article was originally published by Villanova University’s Center for Church Management and Business Ethics by Michael Castrilli