Churches readily understand the importance of preparing an annual budget and having it duly approved by the appropriate church committee, board, and/or the congregation—whichever is charged with financial accountability and oversight responsibility.
But here’s the catch: A budget is a largely useless document unless the monthly budget allocations are done well. Decisions of whether to make spending adjustments must be informed by sound allocations of revenue and expenses. Unfortunate decisions can be made based on poor allocations. What is the church financial team to do?
Take these simple steps:
- Take monthly budget allocations seriously. Don’t go through the arduous budget development process and destroy the usefulness of the budget by failing to do the further hard work of making sound revenue and expense allocations by month.
- Study prior year actual data by month. The starting point for current year budget allocations is the prior year actual data. Study it to determine the significant data that will change for the current year. For example, in the prior year, suppose a large expense for attorney fees occurred over a four-month period because of a lawsuit brought against the church. The matter is now closed and only a modest amount is in budget as a legal retainer—this amount might well be spread ratably over the current year.
- Reflect on changes in revenue or expenses patterns for the current year. Certain new or increased activity for the current year may modify the monthly revenue or allocation pattern for the current year. For example, a new program may be scheduled only to run for three months in the spring and three months in the fall, therefore the budget allocations by month must match the anticipated expense pattern.
Sound budget allocations will help your church make more informed decisions. Try it and see for yourself how useful a budget can be.
For more great tips on budgeting, check out the 10 Essentials of Church Budgeting eBook (free to ECFA certified churches).
Don’t live with your bad budget allocations for the entire year! Read more in this article from ECFA President Dan Busby. (Published in The Church Network inSight Journal - Summer 2018.)