Watch the following video to learn the basics of church financing.
As a church leader, you’ll often find yourself doing something you’re not necessarily trained for, and that has little to do with preaching and leadership.
Van driver? Sure. Audio-visual pro? Why not. Animal wrangler? Wait, what kind of church are you running, anyway?
One of the tasks you might find yourself stuck with—unless your church is blessed with a full or part-time accountant on staff—is finance management.
Maybe you’re new to managing finances, and you have no idea where to start. Perhaps you inherited this role and you don’t even know where the money is kept. How much is coming in each month, and how much is going out? Is your church financially healthy?
That’s a lot to figure out, and it may be making you a bit panicky.
Don’t worry; we’re here to help. In this guide, we’ll go through a step-by-step process to assess your church’s financial health, put a budget together, and evaluate and improve your congregation’s giving. Along the way, we’ll give you helpful tools and resources.
Is your church financially healthy?
All that cash should probably be in a bank, though
There are two primary factors to consider when determining whether your church is financially healthy: your budget, and your giving practices.
Take a closer look by asking—and answering—the following questions:
- Does your church pay its expenses on time?
- Does your church have adequate emergency funds?
- Does your church maintain sufficient undesignated reserves?
- Is you church’s giving campaign effective and ongoing?
- Does your church membership support missions beyond the local church?
- Is your church building toward expansion, or just treading water?
If you answered “no” or “I don’t know” to any of these questions, you have some work to do!
Let’s tackle each of these factors in turn.
Part I: Budget
Your budget is a clue as to what spending is important to your church, and what isn’t. It’s a reflection of the overall strategy and focus of your church in a given calendar year.
At the very least, your ministry should set an annual spending plan based on what was spent in previous years while factoring in future goals and objectives. If your church spent $15,000 on transportation costs last year but you’re looking to acquire a new van this year, expect your transportation costs to double and plan accordingly.
To see what was spent in the previous years, dig out old financial statements, records, and receipts. Hopefully, this information is recorded in an accounting program like QuickBooks or FreshBooks, rather than in a drawer full of tattered receipts and invoices. This isn’t the 1800s and you’re not Ebenezer Scrooge, so please, use a computer.
Some church management software has accounting features built in (here’s a filtered list), while others integrate with popular accounting tools. There is even accounting software made specifically for churches. The important thing is that you’re using some type of accounting software and not just roughing it with a spreadsheet.
Churches have specific tax rules that make accounting software more of a necessity than a luxury. If you take over your church’s finances and find that there isn’t an accounting system in place, establishing one should be your first priority. If budget is an issue, explore free options.
And while there are several free options out there for budget-constrained churches, I recommend starting your search with our Top 20 Most Affordable Accounting Software list or our church-specific accounting directory instead. While free software has the whole free thing going for it, paid software is almost universally more functional and intuitive, and the customer support is a lot more helpful than you’ll get with a free option.
4 Steps to Get Your Budget in Order
Once you’ve located your financial records and settled on a church accounting system, you need a game plan for getting your budget in order.
1. Set your goals for the year
Clearly define and communicate your church’s mission and goals for the year, and do this before the first budget requests are developed so you can fit your annual plans within the church’s larger objectives.
Here are a few goal examples:
- Invite 100 people to join the church this year
- Implement specific new ministries
- Construct additions or new buildings
- Achieve an average of 200 Sunday service attendees
A good way to come up with church goals is to ask your members what they want. I’m not talking about things like a coffee bar or new sound system, although those additions are fine once you have your other priorities—such as serving the greater community—in order. I’m talking about how they want to advance the mission of your church, such as expanding into a new community, increasing attendance at your main location, or starting new outreach missions.
If your goals are attendance-related, make sure you’re using the attendance tracking feature in your church management software to set realistic goals and track your progress.
2. Stabilize your expenses
Go over your current expenses, such as payroll, ministries, upkeep, and utilities. Make sure you’re covering your costs, and have a stable influx of money to keep them covered. You want to break down your budget and allocate your money appropriately.
According to the Evangelical Christian Credit Union, the typical expense breakdown for a church operational budgets is:
- 38% toward salaries and wages
- 12% toward buildings/facilities
- 8% toward utilities
- 7% toward ministries and support
The credit union also provides a more detailed look at budget expenses by church size:
Looks kind of like the nutrition label on an especially unhealthy snack
Here are some tools to help manage your church budget:
- Church Extension Plan has a budget planning worksheet broken down by three key expenses: administrative, facility, and ministries
- Calculito has a church expenses budget calculator that you can edit yourself
- Belay offers a free eBook, “Starting a Budget for a Nonprofit,” that includes a template for beginners
Be sure to regularly update your software and review reports so you can see where the money is coming and going, and make any necessary adjustments. A financial report communicates your ministry’s financial position and operational results, and should be shared with church leadership.
A sample church financial report (via Metropolitan Community Churches)
While you could put them together manually, software can transform the creation and distribution of these reports from an hours long ordeal into a nearly effortless process. A few of the most popular church software systems in Capterra’s directory that include built-in accounting features—such as accounts payable, general ledger, and payroll—are Aplos, ChurchTrac Online, and Ministry Tracker. Not convinced? Check out these Aplos alternatives for software solutions with similar features.
3. Build sufficient financial reserves
Once you have your baseline budget in order, you should focus on growing your undesignated reserves so you can invest in the future of the church and strengthen your rainy day fund.
Reserves are typically built up over time by generating an unrestricted surplus and purposefully setting aside a portion of the extra money as a reserve fund. Common reserve goals are three to six months’ expenses. On the high end, reserves should not exceed two years’ budget, and on the low end they should cover at least one pay period for all of your staff, including taxes.
Ask your bank if they specialize in church finances. For example, Cass Commercial Bank serves religious organizations of all denominations with experience in church buildings and restructuring debt. Griffin Capital Funding specializes in church loans, and Christian Community Credit Union serves a network of churches nationwide.
Whichever bank you work with, it never hurts to ask if they have programs in place specifically for churches.
4. Consider drastic options (if necessary)
If you are struggling financially, your church might need to consider downsizing or relocating. If your church has a low ratio between fixed costs and the number of giving units, or if lacks adequate emergency reserves, you may be struggling.
If you do have to cut back, be prepared to take drastic measures that could mean anything from cutting back on expenses to reaching out to donors immediately for help getting back on your feet.
Bonuses, pay increases, ministry budgets, and flexible expenses should be cut first. Next, reduce capital spending. Personnel should be the last cut—put your people ahead of all other resources. It’s important to make a list of priorities and reduce costs wherever you can, no matter how small.
Part II: Giving/Donations
Today, most donations are made electronically
Donations and tithes are your church’s financial lifeblood. Generating money should never be your driving force, but you do need funds to operate. The first step to determining the scope of your fundraising capabilities is to assess the financial health of your congregation.
Here are some questions to help you gain that understanding:
- How much money does your church collectively give to special needs and offerings that are distributed outside of the church? This measurement will show how healthy your church is in the areas of ministry and missions. According to the Evangelical Christian Credit Union, for mid-sized churches, 20% of total giving (on average) supports ministries and missions. If nearly all of your money is just going to maintaining your insular church body, you either need more money coming in or to prioritize your spending differently.
- How does overall giving compare to overall attendance? Based on a Church Building Consultants & Capital Campaign Consultants giving analysis, on average you should expect roughly $20 per adult head in any given week. If you average attendance of 200, you should be receiving about $4,000 per week. Of course, this varies based on area demographics, but if you’re seeing a growth in attendance but not giving, your new members/attendees may not understand the importance of giving. It might be time to organize a fundraising drive.
- How are the needs of church members being met? Is internal benevolence on your church’s radar? Do church members have a voice in the management of your church? It’s important that you cater to the needs of your church members and listen to their questions and concerns for the church as well. The more you listen to their needs, the more generous and willing to give your congregation will be. GenerousChurch’s 8-Point Cultivating Generosity Ladder is a great tool to help you analyze the motivations behind giving.
After you ask, and answer, those questions, move on to these next steps:
1. Educate your members
Talk to your church members about giving and explain that the church can only operate with their support. Teach giving as an act of worship, implement stewardship campaigns, provide giving opportunities, preach stewardship sermons throughout the year, and hold meetings where members can come together and discuss financial challenges. The Lewis Center for Church Leadership has a useful checklist of 50 ways to encourage giving.
Communicate successes and goals by talking about past achievements (via meetings, sermons, e-mail blasts, or newsletters), laying out the year’s goals, and detailing your plan to get there so church members understand the importance of giving.
Here are some additional resources to help increase donations:
- ChurchTechToday offers a free eBook that details how to record and increase your church donations, build trusting relationships with your donors, what giving options churches choose to make available to their donors, and more.
- echurch has 20 Practical Tips to Increase Church Giving, such as offering financial classes and accepting mobile donations.
2. Make it easier for members to give
Online giving, mobile giving, and recurring donations are all ways to make giving painless for your congregation.
Here are some tools to help get you started:
- The City—a social network for churches—has a giving module that enables the complete donation cycle, from user-driven pledging to online giving, as well as donation, fund, and batch management and reporting.
- BytheBook is church donation software that shows you how to easily enter tithes and offerings, report on giving by fund or donor, and identify giving trends.
- Software4Nonprofits has a donation version with a free option for up to 100 donors per year (they charge $20 for support each year).
3. Lead by example
Be a good example for your followers by putting on events and fundraisers, and show your congregation the effects of being generous. Show church members what major outside causes the church gives money to, and detail the measurable effects of that generosity.
Here are some tools for managing fundraising events:
- DoJiggy is affordable fundraising software with a resource center dedicated to helping non-profits plan and execute fundraising events.
- Blackbaud offers a wide variety of fundraising resources.
- Here’s a list of fun summer fundraiser ideas, and five modern fundraising techniques.
Time to take charge
If you have your own suggestions or tools for successfully managing church finances, help your fellow church leaders by sharing them in the comments.
Financial health is never a quick, one-time fix. It requires constant attention and maintenance. So follow our church management blog, and read these other church accounting articles, to stay on top of your church finances:
- 3 Ways to Maximize Matching Gift Programs at Your Church
- 8 Alternatives to PayPal for Churches
- 5 Steps to Effectively Advertise Your Church
- The Top 6 Most Reviewed Church Accounting Software Solutions
- How to Make Your Church Building Pay For Itself
- Mega-Church Marketing on a Micro-Church Budget
- Passing the Basket: 5 Updated Church Fundraising Techniques