We hope you will enjoy this guest post from Jon Osterburg, COO of Jitasa!
If you’re an administrator at a church, you know that running a faith-based organization requires you to manage many moving parts. Between keeping the congregation engaged in your ministries, conducting community outreach, and coordinating various events and initiatives, you have a lot on your plate.
It isn’t surprising, then, that churches’ financial management often takes a backseat to the other activities that more directly further their missions. However, your mission-related initiatives only become possible when you effectively allocate resources so every area of your ministry is well funded.
In this guide, we’ll walk through three top strategies for church financial management, including how to:
- Diversify Your Funding
- Create an Annual Operating Budget
- Compile Essential Financial Statements
As you begin implementing these strategies, make sure you have a solid church bookkeeping and accounting system in place. This way, you’ll be able to keep accurate financial records and ensure all of your staff members are on the same page about where your church stands with its funding and spending. Let’s get started!
1. Diversify Your Funding
In the past, churches often received the bulk of their funds from the cash and checks that attendees contributed to the weekly offering. However, as giving trends change and more churches have expanded their outreach into the digital sphere, adding new revenue streams to your funding model is essential to keep your congregation engaged and motivated to contribute.
Consider adding one or more of these top church fundraising ideas to your strategy:
- Events. From fundraising luncheons to bake sales to 5K races, there are countless ways to bring church members together in support of your mission. If you can’t decide what type of event would appeal most to your congregation, send out a survey to learn more about your members’ interests and plan an event they’ll enjoy attending.
- Product fundraising. You can also go in multiple directions with this fundraising method depending on your congregation’s preferences. For instance, you might open an online store to sell t-shirts, water bottles, magnets, and other products branded to your church. Or, you could partner with a product fundraising organization to sell anything from snacks to gift cards to Christmas poinsettias.
- Online giving page. Take your weekly collection online by adding a “Give” page to your church’s website. Make sure your donation form can accept multiple payment methods, including bank account transfers, all major credit cards, and mobile payment services like PayPal and Venmo.
- Donation request letters. Especially if you’re asking church members to give to a special fund or your year-end giving campaign, sending out individual letters adds a personal touch that can encourage additional contributions. To make your asks more effective, Fundraising Letters recommends addressing each member by name and providing concrete examples of how your church will use their gifts.
Diversifying your church’s funding sources is also an important part of achieving long-term financial stability. If you have multiple revenue streams instead of relying on a single type of funding, your church is more likely to recover its financial position even if a source comes up short.
2. Create an Annual Operating Budget
Your annual operating budget is the most important financial planning document your church creates. It breaks down all of the expenses you expect to incur, as well as how much funding you plan to bring in throughout the year to cover those costs.
Most organizations further categorize their predicted revenue by source to help evaluate how well their different funding streams work together. Although there are several ways you could break down your expenses in your budget, churches and other tax-exempt organizations typically organize them based on the money’s function in fulfilling the organization’s mission.
To budget your church’s expenses by function, use the following categories:
- Program costs are directly associated with your church’s ministries, such as supplies for your weekly youth group meetings or books for your Sunday School classes.
- Administrative costs are necessary to operate your church, including staff salaries, utility bills, and purchases of new office equipment.
- Fundraising costs are the upfront expenses associated with bringing in revenue for your church, which include any money spent on fundraising event planning, marketing, and products or software used in your fundraisers.
Your administrative and fundraising expenses together comprise your church’s overhead. While overhead is often discussed in a negative way, it isn’t inherently bad—in fact, it’s essential for your church to thrive. Just make sure that your program costs make up a majority of your budget.
Another common misconception about church budgeting is that because faith-based organizations aren’t allowed to turn a profit, their budgets have to break even every year. In reality, it’s best to budget for a revenue surplus if possible. This way, you’ll have additional funding on hand in case your expenses are higher or the amount of revenue you generate is lower than expected, and you can contribute any extra money to your church’s emergency fund.
3. Compile Essential Financial Statements
While your church’s budget functions as a financial planning tool for the coming year, your financial statements allow you to look back on the past year’s spending and revenue generation. Each of these reports summarizes your church’s financial data in a different way and to provide unique insights.
Jitasa’s financial management guide recommends that churches compile the following four statements each year:
- Statement of activities. The nonprofit organization parallel to the for-profit income statement, this report breaks down your church’s revenue and expenses so you can easily compare your actual numbers to the predictions in your budget.
- Statement of financial position. Also known as a balance sheet, this statement compares your church’s assets (what you own) to its liabilities (what you owe) to provide a snapshot of the church’s financial health and help you plan for growth.
- Statement of cash flows. This report shows how cash moves in and out of your church through operating, investing, and financing activities, allowing you to evaluate its spending habits and fundraising capabilities.
- Statement of functional expenses. This statement is technically optional for churches—its main purpose at other nonprofits is to assist in filling out their annual Form 990, which most churches aren’t required to complete. However, it can still be useful to get a clearer picture of your past expenses as you make projections for the upcoming year’s operating budget.
While all of these insights are helpful in assessing your church’s financial situation, the main purpose of compiling financial statements is to increase transparency with church members and staff about how you use funding. Consider including these statements in your annual report to promote this type of financial accountability at your church.
As you go about improving your church’s financial management practices, remember that accountability should be at the heart of your accounting activities. When your congregation trusts that your church is handling funding effectively to further its mission, they’re more likely to continue supporting you long-term.
About the author:
Jon Osterburg has spent the last nine years helping more than 100 nonprofits around the world with their finances as a leader at Jitasa, an accounting firm that offers bookkeeping and accounting services to not for profit organizations.