By Michael Castrilli

Church Budget Phases 101

There are three main phases of the church budget process. All budget processes have components of these three phases. Therefore, by understanding them, you’re on the right track to managing your church budget process with ease.

Phase 1: Budget Formulation

The budget formulation stage includes gathering relevant policies, soliciting information from staff and parishioners, documenting assumptions, and projecting revenues and expenses. By developing a resource plan to put priorities into action, collaboration and transparency are critical to this phase of the budget process to ensure openness, buy-in, and accountability by the entire parish community.

Phase 2: Budget Execution

Once the budget is approved, budget execution is the phase when the plan is put into action. The key features of budget execution include establishing and communicating clear policies and procedures for the receipt and disbursement of resources and ensuring financial transparency.

Phase 3: Budget Control

Budget control processes and procedures are established to ensure that the parish meets planned targets for revenue and expenses. If challenges arise or circumstances change for any reason, tools like variance analysis help parish leaders assess the impact of changes and proactively mitigate financial risks.

Now that we have a basic understanding of the budget phases, next week, we will review the different components of what we will call – The Master Budget!

By Michael Castrilli

It’s All About The Flow

It is important to design your budget recognizing the fact that some revenues and expenses fluctuate throughout the year. Most churches develop a twelve-month budget but differ on how the budget is displayed and managed.

To have the most realistic and manageable view of the budget, create a Church Cash Flow Budget. Unlike the creation of a budget that evenly divides income and expense categories by the number of months in the budget period (linear), a Church Cash Flow Budget provides realistic month-to-month projections of anticipated receipts and expenditures. The advantages to creating this type of budget are numerous, including:

Gaining visibility into actual revenues and disbursements of cash
Understanding how seasonality may affect revenues or expenses
Managing cash flow for months with higher expenses or lower income.
Mitigating the risk of not having enough cash on hand to pay bills.

St. John Lateran in Rome, Italy — St. John Lateran, Rome Italy

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By Michael Castrilli

Bottom-Up Budgeting: Start From The Ground Floor

Which budget method(s) do you use when you create your church budget? How do you estimate revenues and expenses? Last week we discussed top-down budgeting! This week, let’s take a look at bottom-up budgeting.

Bottom-up Budgeting

Sometimes referred to as zero-based budgeting, the bottom-up method involves building a budget from the lowest income/expense elements and then rolling them up into the total budget request. From zero, each cost element is developed and justified. Therefore when the budget is complete, the program manager has a thorough understanding of the budget under their management.

Advantages/Challenges

The advantage of this method is that each cost element is scrutinized and justified in order to develop the budget. The challenge to this type of method is that it can be time-consuming due to the comprehensive nature of building from zero up.

Therefore, the leader might consider using this method for one department at a time or taking a bottom-up approach every other year so that the process is not overwhelming for those involved in building the budget.

For example, maybe you start with the Music program, and the following year, review the Religious Education program. When a budget has been developed using the bottom-up approach method, the insight into a program/department is typically very good.

Another advantage of this method is that the detailed analysis provides a level of granularity not necessarily achieved by top-down budgeting. With top-down budgeting, the dollars are broken out from a broader perspective, whereas the bottom-up method creates a more precise estimate of program costs.

Can you figure out what the greatest challenge to implementing a bottom-up budget method? You guessed it; the method can cause anxiety. People may feel like you are scrutinizing them and get defensive. Help staff to understand the answer to questions like, “Why me?” or “Why my program?” Be truthful. If you are asking for staff to build a bottom-up budget because you are concerned about overspending, let them know. We often think that we don’t want to concern staff. But guess what? They become concerned anyway.

When you answer the “why?” question truthfully, watch as build buy-in and rapport. People are happy to help build a great budget when they are clear about expectations and outcomes.

Photo Credit: mripp Flickr via Compfight cc

Portions of this text are excerpted from Parish Finance: Best Practices in Church Management (Mahwah: Paulist Press, 2016), Chapter 4

By Michael Castrilli

Potholes are in the Plan

Ask any church leader about church management and one topic always comes up – infrastructure! From building maintenance, boilers, roofs, sidewalks, and parking lots – this is a top-of-mind issue when it comes to financial planning.

Here is the good news – the church capital assets budget is a proactive way to analyze the present and plan for the future. Defined as the spending plan for updating, repairing, maintaining, or purchasing capital assets, this budget can save you time and money today, tomorrow, and forever.

Capital assets are simply those items that the parish owns that have value extending beyond a year. For example, the church building and rectory are capital assets because the value of these assets continues over multiple years. Other examples might include the parking lot, computers or any major equipment owned.

By creating a church capital assets budget, church leaders can reduce their fear of dreaded leaks, breakdowns, cracks, and potholes!

Interestingly, even though these assets are critical to accomplishing the mission of the parish, many parishes do not have a capital budget. For example, if a church building is unusable due to maintenance issues or the high costs to operate the facility, how does the parish accomplish its critical mission?

A strategy to get started with effectively managing capital assets is to catalog all assets owned by the church and document the relative age of the assets. By recording this information, the parish can project when assets may decline or will need replacement.

The other benefit of this type of documentation is succession planning. When a new pastor arrives at the parish, the catalog can be extremely helpful to know what assets exist at the church.

By developing a capital assets budget, the parish is prioritizing the critical infrastructure that is necessary for meeting mission goals.

In tomorrow’s post, I’ll discuss how to go about cataloging church assets to get this plan created.

Read More – 30 Tips in 30 Days

By Michael Castrilli

Church Capital Assets Planning

Yesterday, I discussed the importance of creating a church capital assets budget! As a refresher, capital assets are simply those items that the church owns that have value extending beyond one year. Can you think of some examples?

Yes, I am sure you guessed – the church building, the rectory, or other assets like major equipment – for example, a boiler, the church organ, or computers and technology.

Interestingly, even though these assets are critical to accomplishing the mission of the parish, many parishes do not have a capital budget. This may be due to a number of factors, but the process of creating a capital budget does not have to be overly difficult.

If a church building is unusable due to maintenance, issues or the high cost operate the facility, how does the parish accomplish the critical mission? Capital budgets can be helpful in this regard.

Today, let’s walk through the various categories and questions that can help you put this budget together.

Capital improvements – Do you have any significant projects planned for new buildings, additions, major refurbishes or upgrades?

Asset purchases – Do you anticipate any purchases of new equipment like computers, software (e.g. financial management system) or other assets that will be available beyond one year?

Equipment repair – Do you have equipment that might require repair in the upcoming years? Is money available for unexpected equipment breakdowns?

Facility upgrades – Are there any updates planned or necessary? Examples might include painting, carpeting, or retrofitting classrooms for new LCD screens.

Deferred maintenance – Have resource been allocated for the replacement of assets before they fail? This category also includes scheduled or routine maintenance (e.g. the annual boiler inspection) to ensure that assets last for their expected useful life.

Don’t forget to consider any new planned investments on the horizon and ensure that you build into the budget the expected useful life of the assets. As you consider the categories above, create a three to five year (or more) budget. Remember, it does not have to be perfect! By undertaking this review and understanding your critical infrastructure needs, you may be surprised by the insights you gain.

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