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.

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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.

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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!

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My experience working with ministers is that for many, church budgeting is viewed as 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.

In simple terms, the budget is the tool that connects church priorities to financial resources. The alignment between church mission, vision, pastoral priorities, and budgeting are integrally linked. Effective parish budgeting not only enables you to plan, allocate, and manage resources effectively, it will empower you with information and insights to help inform decision-making.

So, where do you begin? Let me help debunk the myth of budgeting as a constraining activity and provide some simple strategies for developing an effective, efficient, and collaborative budget and financial management practices. Let’s begin with understanding the three main phases of the church budget process.

Tip 11: Formulate, Execute, Control

Below is an excerpt from Parish Finance: Best Practices in Church Management (Mahwah: Paulist Press, 2016).

Phase 1: Church Budget Formulation

Budget formulation is the process used to develop the budget. This is where you will review the variety of income and expense categories and determine how much you expect to receive and project how much you plan to spend. There are a variety of methods we can use to create the budget and in which we can develop the budget. Whether you use top-down, bottom-up, incremental, or flexible budgeting, the framework will help you structure the development.

In the budget formulation phase, the parish will get into the nuts and bolts of budget building. Here a variety of questions will be answered including:

• What are the assumptions and expectations for the upcoming year?
• How will resources be allocated for staff, programs, emerging requirements, or assets?
• What information and methods will be used to ensure that accurate projections/forecasts are developed for income and expenses?

This is the phase of the budget process where we will build the “budget house.” We will review architecture plans, pour a solid foundation, frame the walls, and build a strong roof so that as storms rage, the house remains sturdy and strong.

Phase 2: Church Budget Execution

Once the income and expense parameters have been set, and the budget has been approved, the plan is ready to be implemented. Budget execution is the phase in the budget lifecycle when the checks are written, salaries paid, and income is received. Policies and procedures are established to ensure accountability. Clear roles and responsibilities are developed for who, what, when and how resources will be authorized, distributed, and accounted for. The outcomes of this phase are policies and procedures for collecting and distributing resources.

Phase 3: Church Budget Control

Complementing the execution phase, budget control is the part of the budgeting lifecycle that ensures that the efforts that you have put into the other steps of the process are successful. Strategies and techniques can be deployed to keep you on track and headed in the right direction with warnings along the way if you are getting off track. Actual income and spending amounts are compared to budgeted projections to measure variances between the amounts. With this information, parish managers can accurately account for resources or deploy mitigation tactics if spending is getting out of control or if resources need to be reallocated.

All three of these phases build upon one another and create a budget lifecycle that brings flexibility, adaptability, and accountability to financial planning and actions.

Qeustions/Comments? Contact me at mjcastrilli@gmail.com.

Were you able to sleep in today? Did you arrive at church an hour early?

What does this have to do with church budgets? Good question! The answer is that church budget forecasts are impacted by events like the changing of the clocks for Daylight Saving Time. Most notably in the Fall, have you ever had someone say, “Gosh, I forgot to set my clock back and I woke up an hour later and missed Mass!” As we all know, the time change always occurs on a Sunday.

Have you ever noticed if your collections go down by a certain percentage in the Fall because people are more likely to miss Mass?

The point is that when you are creating revenue projections for the next year, like forecasting collections, note which Sundays have special circumstances surrounding them. For example, does New Years Day fall on a Sunday?  Have you accounted for the cash flow impact when Easter is early (March) or late (April)? Is the Pope visiting? Is it an El Nino or La Nina weather forecast (just kidding)?

Tip 5: When preparing the budget, review the upcoming calendar for events, factors, or circumstances that impact Sundays (i.e. Daylight Saving Time)

The budget is impacted by a wide variety of other circumstances as well. This summer, I wrote a blog post titled, Beachgoers, Snowbirds, and Church Budgets. The post explored the wide variety of factors that may impact a church budget like weather, holidays, holydays, or even accounting for the migration of the northeast snowbirds (like my parents)! These factors call all wreak havoc, or create harmony (with an influx of cash) on church budgets.  Without repeating all of the content on my summer post, click here to read more!

Budget Action Step: Review the past year and understand what has impacted your church budget. You may find that your budget is highly-sensitive to a variety of special circumstances – or maybe not sensitive at all. The bottom line is that if you have never checked, you may never know. This type of analysis can provide you the information and insight you need to prepare the budget in the best way possible!

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