Guide to Understanding Church Finances 101 - Griffin Church Loans

Church Finances 101

Are you feeling overwhelmed with your church’s finances? Or perhaps you don’t even know where to begin? That’s only natural given that most churches’ finances are handled by volunteers, pastors, or a member of the congregation who may not have the accounting and financial knowledge to manage them. The only exception is if you’re a large church having a dedicated team in which case the budgeting and forecasting is handled by certified finance professional. 

But there’s nothing to worry about if you don’t have a degree in accounting or finance. Understanding the basics of how church finances work isn’t that difficult if you familiarize yourself with a few accounting and budgeting tips for preparing and reconciling your church’s balance sheet, evaluating its financial health, and preparing for contingencies. 

church finances 101

Establish a Budget for your Church

The first step towards practicing Church Finances 101 is establishing a budget for your church, which may seem more challenging than it actually is. To overcome the mental barriers that may initially overwhelm you, think about it simply as developing a plan that helps your church achieve its objectives, be it in terms of managing expenses, donating to the needy, or preparing for the future.

A great starting point would be to think about your church’s mission and what is it trying to achieve over the next year, 3 years, or 5 years? How does it plan on covering expenses in the next year? Are the goals reflected in the budget? And finally, what is the current financial condition of your church? Does it have adequate resources to manage expenditures for the year? What is the average giving trend? Can you forecast the approximate income from donations? Here’s a step-by-step approach towards answering these and other important questions:

Church Finances 101: Step-by-Step Guide

Estimate Expenses for the Year

Church Finances 101 dictates that it’s best to estimate expenses for the current or upcoming year by inspecting last year’s financial records. Next identify the major expense categories by asking simple questions, some examples of which are listed below:

  • What was the rent expense over the last year – applicable in case of leased property? Does your church have an ongoing mortgage expense? Or in the case of church mortgage refinancing, consider the net mortgage expense each month. 
  • What was the annual expenditure on utilities, renovation, and facilities maintenance?
  • What does property insurance cost every year?
  • In case of salaried or contractual staff, what was the total monthly expenditure on salaries and wages?
  • Were there any heavy expenditures on big-ticket items like say new technological or musical equipment?
  • How much budget was allocated towards supporting missions, ministries, and support programs?

Next consider the other relatively small items like food and cleaning supplies. By adding up these major and minor expense categories, you’ll arrive at a ballpark figure of the net expenses for the current fiscal year. Also consider extraordinarily large expenses for the current year like new church construction for a multi-site presence, if applicable.

In addition, you can brainstorm ways to effectively minimize expenses, wherever possible. For instance, does your church require full-time staff or can part-timers fulfill all the responsibilities? Is there any way to reduce power consumption and costs?  

Track your Donations 

Track the donations received over the last year so you can estimate the amount that church members would give collectively over the next year. It helps to know the amount that the average member gives so you can plan your budget accordingly. To calculate this number, simply divide the total donations received by the number of members in the church. 

Church Finances 101 problem scenario – if a church receives $240,000 in donations annually, and if it has 200 members in its congregation, the amount given by the average member is $2400 over a single year. Calculating this number helps you forecast the expected donations over a year, based on the number of members present at any given point. 

Determine Your Annual Goals

It also helps to prioritize expenses by considering your church’s mission and goals in terms of contributing to the community. We recommend gathering together the church committee and congregation members so everyone can collectively decide which charities to support. Can an adequate portion of the budget be set aside for fulfilling these charities at the beginning of the year?

When determining the annual goals, any major expenses for the upcoming year should be considered. For instance, over the next year what major expenses will your church incur? Are there any new ministries or educational support programs to help? Will there be any renovation or church expansion costs? What religious programs or charitable events will be planned over the next year?

Determine the Available Balance 

We’re often asked: how to finance a church’s expenses and support programs? According to Church Finances 101, the first step ideally is to check the available balance, which is a crucial step for planning your budget. What will be the predicted income from donations? Do you have sufficient resources to cover major expenses and support charity programs that the church is committed to? Or will you require additional donations or church loan programs to cover expenses and support charity programs? The church finances best practices include using a spreadsheet for the necessary calculations to determine how far the available balance can stretch or over what period of time.

Savvy Tips for Effectively Managing your Church’s Finances

Communicate Openly with Members 

If you’re a church leader, you can talk to your congregation members about the importance of giving to cover basic costs and expenses for community outreach programs. If you’re a volunteer in charge of managing the finances, you can discuss the church’s needs with your committee members or leader so they can communicate the same to the members. Be prepared to provide them financial updates regularly so everyone is abreast of the state of the church’s finances.

Often times church attendees are not aware of any pressing financial needs so it’s a good idea to be open with them if the church requires donations. Also communicate the church’s goals so they understand where their contributions are directed and what causes they would be supporting by giving to the church. Members are very receptive to calls for contributing towards charity and supporting the primary mission of the church. 

That said, there’s a caveat: be cautious of focusing too hard on financial matters because the church is after all a place of worship and member should not feel compelled to give. So it’s important to freely communicate the church’s needs to the members while letting them know that they don’t have to give if they are unable to, owing to a financial crunch.

Set Up Automated/Recurring Giving 

Many times members want to make donations on a regular basis but do not or cannot do so due to several reasons. They may forget to give a check every month, they may be unable to attend church regularly, they may be out of town for work or the holidays, they may be too preoccupied with the events in their life say a promotion, wedding plans, or a job change to realize they haven’t made a donation in a long time. 

In such cases, setting up automated or recurring giving ensures that they fulfill their desire of giving to the church on a regular basis, no matter where or how busy they may be. It’s a good idea to initiate the process by first letting members know that there is a provision to set up automatic donation transactions directly from their bank accounts or debit/credit cards. Those members who feel inclined to make regular donations will sign up for recurring giving. 

The more the members sign up for automated giving, the more predictable the church’s incoming streams will be. According to Church Finances 101, by knowing the anticipated contributions for each month or on an annual basis, you can outline your church’s accurate financial budget and plan with clear mandates and goals to cover the chosen support missions while taking care of ongoing expenses.

In cases where recurring giving is not an option, the church can provide an alternative way to give by setting up kiosks in the church premises for accepting donations by card and cash payments too, if possible. For members who miss service for some reason, the church can establish an online portal or website for accepting donations, making it easier for them to continue to support the church’s mission and goals. If possible, the church can even set up separate funds for different charities or missions, allowing members to choose which cause they would like to support.

Save for a Rainy Day

Like every individual or entity, churches too need to save for a rainy day – this is the basic premise of Church Finances 101. In fact the need for a church to financially plan for contingencies is even greater considering they may have to set up a fund for imminent crises or disasters, if need be.

Disasters or calamities aside, churches may even have to prepare for unavoidable, unforeseen costs in the future. The best time to establish a fund for contingency planning was yesterday. But it’s not too late to start now. Having surplus financial reserves is always prudent, irrespective of whether the emergency will arise in the first place. In any case, it’s calming to know that funds are available to cover expenses that may crop up suddenly. Given the unpredictability of donations, saving your church’s financial reserves to cover future expenses makes logical sense. 

By saving for a rainy day, churches protect themselves from a financial crunch that makes it difficult to cover routine expenses and also ensures that they won’t have to discontinue support to their favorite charities or outreach programs, even if the amount of incoming donations were to reduce in the future. As a rule of thumb, a church that at any given moment has sufficient funds to cover expenses and support its ministry and charity programs for at least 6-8 months, is said to be financially sound.

Protect your Church from Fraud 

No matter how noble the cause, the unfortunate reality is that there is no guarantee that fraudulent activity or stealing will not occur. Therefore, even churches need to protect themselves from fraud so they can forever continue their mission to guide the community members and support charitable missions and programs. 

Regardless of how unnecessary this may seem at any given point of time, history has shown that it’s better to be safe than sorry. You never know when a church treasurer, pastor, committee member, or anyone who is responsible for the stewardship of the church’s finances may feel compelled to ‘borrow’ money from the church’s accounts, especially if they’re in an unfortunate or challenging financial situation.

According to Church Finances 101, there are various control measures or safeguards that can be implemented together to minimize fraud or embezzlement of funds. Consider appointing volunteers to manage finances on a rotational basis so there’s a higher probability of detecting any discrepancy, which can then be immediately reported to the committee members. It’s also a great idea to necessitate two signatures for authorizing any transaction related to the church account or fund reserve. Another safeguard is to reconcile the ledger on a regular basis and to establish an external team to audit the books periodically. After all, frequent audits and multiple checks to keep a check on unintentional or intentional discrepancies can only do more good than harm.

Another precautionary measure to protect the financial integrity of your church is by not involving leaders in matters of finance. Besides freeing leaders and pastors from financial stewardship ensures they can dedicate more time towards their congregational responsibilities like leading, inspiring, and preaching to the members. 

We hope our guide to Church Finances 101 helped you adequately learn about church finances and the basics of financial planning and budgeting so you can get your books in order and assess the financial health of your church. 
If you’re looking for church financing to help cover any large expense, expand your facility, or purchase a new one, consider Griffin Church Loans. We have so far helped 1200 churches by providing loans. Plus we don’t require any personal guarantees and have no upfront fees. To get started, fill out the check rates now form – we respond within 24 hours!

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