Budgeting Beyond the Basics

Managing Your Church's Money

by Doug Clay

A new pastor arrives, and the church is excited!

The church had gone through a very difficult experience in losing their previous pastor. Emotions were raw; there was still much pain and division, but the church was now hopeful and enjoyed the possibility of focusing on the future rather than dealing with the issues of the past.

The new pastor was excited about his new assignment. He knew the turmoil that the church had recently gone through, but he felt in his spirit that God had called him to help bring health and healing to this church.

However, what he did not realize was just how frail the financial situation had become. The search committee did mention this briefly in the interview. Yet he didn’t fully understand the gravity of the situation until he had to hold payroll checks over the weekend, waiting to deposit the next offering. He quickly saw the need for a system upgrade for managing and deploying the finances.

I was that pastor. And I was quickly educated in “beyond the basics of budgeting” during my very first payroll cycle!

My initial concern was how in the world I would ever achieve the vision and mission God had put in my heart for this church if we didn’t have enough money.

Have you ever experienced that same fear?

Let me assure you, whatever size church you lead, you can manage your finances effectively without sacrificing your vision and mission. Managing your budget is one of the most effective ways of aligning the finances with the vision.

When it comes to church finances, most people are concerned about the same things. Board members, employees, ministry leaders, and attendees ask the same question that reflects the same concern: What is the state of the church’s finances?

Assessing the Condition of Your Finances

Road signs play a vital role on a road trip. Some road signs convey rules and boundaries for safe driving, like speed limits and passing zones. Other signs convey warnings and cautions that alert drivers to dangerous situations, such as a dangerous curve ahead, a slippery roadway, or steep slopes. These road signs are like flashing beacons that catch a driver’s attention and call for immediate action.

As leaders who oversee and manage church finances, there are road signs along the route of ministry that convey helpful information about the health of your finances.

These seven questions can quickly give you a clearer picture of the state of your church’s finances:

1. How much did we start with?

2. How much did we receive?

3. What was its intended purpose?

4. How did we spend it?

5. Where did it go?

6. How much do we have left?

7. How are we doing?

It’s important for you to be able to answer these questions correctly. Not only will you be able to communicate the status of your finances, but you’ll also have a clear understanding of where you’ve been and where you’re going.

What are your road signs communicating? Destination ahead? Slippery slope? Uphill climb? Slow down? Exit here?

The Number 1 Rule

As we wind down 2014, many churches will begin reviewing their current year activity and planning for next year. It can be a complex and time-consuming exercise for any size church. But the principles and concepts for creating an effective budget transcend size or revenue levels.

When it comes to managing the current budget or projecting next year’s budget, there is a great rule to remember: Don’t let your outgo exceed your income. If you do, your upkeep will be your downfall!

It’s a simple rule, yet some people have difficulty following it. Leaders in the church are often tempted to spend it now and pay for it later. There can be a mindset that says, “We can pass the offering plate next Sunday to make up for the shortfall!” However, whenever a ministry starts committing to expenses before they have cash in hand, they begin traveling down a road that is both risky and dangerous. It is critical to reduce this risk!

Over the years I’ve watched many ministries (and some friends) get into financial trouble because their outgo exceeded their income. Every failure is a constant reminder of how important it is to follow this rule and reduce this risk.

It was my practice both as a pastor and district superintendent to build budget management into the performance evaluation of staff members who had direct oversight and management of ministry funds. I based 25 percent of their performance evaluation on how well they managed their respective budgets. As you can imagine, there was good buy-in and a sense of ownership when it came to budget adherence.

How to Craft the Budget

One important tool that will help your ministry manage finances effectively is a budget. A budget is simply a roadmap that helps you get from point A to point B. It explains how your ministry receives and uses funds.

The budget quantifies your ministry’s goals and objectives. It is a prioritized reflection of your ministry’s vision and mission.

As you know, a bank statement reveals one’s priorities. Where you spend your money is a reflection of what is important to you. The church budget works the same way. An effective budget follows your ministry’s priorities. It reflects the goals and objectives that your leadership has for the upcoming year.

Review, and consider eliminating from the budget, every program, line item, or expense that doesn’t further those goals and objectives. Carefully scrutinize every line item in the budget, and keep your ministry on track as it advances toward point B.

The time and effort you invest in the creation of the budget will directly impact the success of your budget.

Let me share a few more points for you to consider as you craft your budget:

• Include the right people in the process. Certainly, the pastor, who is the primary vision caster, needs to be present. In addition, I suggest involving personnel who will be responsible to manage the budget. These persons may include church board representatives, a treasurer, the bookkeeper, etc.

• When budgeting revenue, use past history as your guide, and be conservative when projecting increases. Don’t increase revenue estimates just to balance the budget.

• When budgeting program and ministry expenses, evaluate the usefulness of these expenses in light of the vision and mission.

• When budgeting operational expenses, review past history, and expect some increases due to inflation, rising supplier costs, etc.

• Require justification for large expenses, and work hard to minimize “guestimates” or “padding.”

• Include discretionary, or “wish-list,” expenses, but clearly identify them in the budget as items that require sufficient revenues for approval.

• For a sample of a church budget template, go to ej.ag.org/churcchbudgettemplate.

• Read the article “Crafting the Church Budget” atblog.agfinancial.org/bid/94784/Navigating-the-Church-Budget.

How to Manage the Budget

Once the budget is completed, the work has only begun. For the next 12 months, leadership will want to monitor and manage the budget to make sure finances are in alignment with their budgeted purpose.

You will need to review the roadmap often and look for road signs that require your attention. Some road signs will confirm you are on the right track, while others alert you to proceed cautiously. Some may warn you to change course if you want to reach your intended destination by the end of the year.

Some churches have their leadership meet monthly to review financial activity. Others may meet less often. At Toledo Calvary, I met with my budget management team every month to review the budget. This was a small subgroup from our governance board that carefully reviewed the budget performance and served with me to make any necessary changes if we were trending differently than planned.

Whatever the frequency, managing the budget will include comparing actual activity to expected activity. Without this scrutiny, your ministry will be captive to your current cash flow. Instead of knowing where you are and where you are going, your business decisions will be based on how much cash came in the offering this week.

Here are some essential tools you’ll need to manage your finances effectively:

• Maintain a record of all financial transactions.

• Prepare monthly reports for review and analysis.

• Establish performance measures to identify what success looks like.

• Analyze trends and make course corrections as needed.

Build into the budget review process some performance measures. Financial reports should include columns for actual and budget. The difference between these two columns reflects whether you are meeting the budget, exceeding the budget, or falling short of the budget. These variances are your primary performance measures. If revenue isn’t meeting expectations at the 3-month and 6-month mark, consider changes in spending. If expenses for a particular program are exceeding expectations, leadership may need to adjust other ministry programs while evaluating the situation.

How to Control the Budget

If you think of a budget as a three-legged stool, the activities of crafting the budget and managing the budget are two of the legs. Controlling the budget is the third activity that brings support and stability to the budget process.

What use is a budget without boundaries or controls to ensure people follow it? (Go ahead and reread the previous sentence.) It’s one thing to have a budget; it’s another thing to effectively control the budget.

Let me offer four suggestions that will help you control your financial plan, especially if many people are involved in executing the budget.

1. Hold respective leaders accountable for the financial activities they control and manage.

2. Require appropriate review and approval before spending funds. Every transaction should have at least two sets of eyes on it for proper accountability and transparency. Empower your bookkeeper to push back if any transaction isn’t appropriate, properly approved, and properly supported.

3. Segregate financial duties to minimize risk. No one person should have full control over church funds. Again, best practices would include two sets of eyes on each transaction. Have someone other than the bookkeeper reconcile the bank account and sign checks. Segregating duties will increase accountability and can help keep expenses from getting out of control.

4. Follow established policies and procedures for every transaction, and minimize exceptions to policy. Certainly, some exceptions may be necessary in the course of your business, but I encourage you to be very transparent and accountable when exceptions are necessary.

How to Manage Restricted Funds

While restricted funds are just a subset of total contributions received during the year, I’ve seen restricted funds mismanaged and even comingled with operating funds, because leaders failed to effectively craft a budget, manage their budget, and control their budget.

Always use restricted funds, or designated funds, for their intended purposes. This is a fiduciary responsibility and a legal responsibility for church leaders. It also builds trust between you and your donors.

I’ve seen leaders use restricted funds to cover operating expenses because they failed to manage their budgets effectively. And it occurs more frequently when proper controls are not present. Therefore, create an effective process to make sure designated funds are used for their intended purposes.

If necessary, segregate restricted funds into separate bank accounts to protect those funds. Be accountable for how those funds are spent by tracking activity and providing summary reports. It is especially important to pay special attention to any special donor restrictions.


Here’s a great proverb to remember: “The wise have wealth and luxury, but fools spend whatever they get” (Proverbs 21:20, NLT).1

I believe saving funds for future expenses or projects is a mark of good stewardship. I also believe it is necessary to protect against normal fluctuations in giving.

Best practices recommend between three and six months of reserves to cover operating expenses in case of major disruptions in economy, natural disasters, or other catastrophic events. Additional reserves may be needed if you plan any capital improvements or major equipment repairs or replacements.

I’ve seen too many church facilities fall into disrepair because there simply were not enough funds on hand to perform basic maintenance and upkeep. Don’t let this be a neglected line item on your budget.

Creating a budget line for reserves will position your organization for future ministry opportunities and help guarantee success when launched.


King Solomon knew the importance of budgeting. His sage advice included: “Know the state of your flocks, and put your heart into caring for your herds, for riches don’t last forever, and the crown might not be passed to the next generation” (Proverbs 27:23,24, NLT).

When Solomon wrote this, most people had their assets tied up in flocks, sheep, cattle, and goats. I think if Solomon wrote this verse in the cultural context of today, he would say, “Know where your money is going, watch your spending, and manage your budget!”

As you implement these principles, I believe you’ll create an effective budget that will help your ministry manage spending, measure financial performance, and ultimately fulfill your ministry goals.

For church finance and administration resources, visit ej.ag.org/churchfinanceresources.


1. Scripture quotations marked (NLT) are taken from the Holy Bible, New Living Translation, copyright © 1996. Used by permission of Tyndale House Publishers, Inc., Wheaton, Illinois 60189. All rights reserved.


Church leaders face decisions every day that affect the health of their churches. Decisions related to financial operations can have a lasting impact on all aspects of ministry.

Making the right choices, adopting proper procedures, and implementing adequate financial controls will go a long way toward ensuring a healthy church.

Unfortunately, some well-meaning leaders make decisions that negatively impact the church’s financial success and leave the ministry vulnerable to waste, fraud, and abuse. Don’t let these seven financial mistakes sideline your Kingdom mission.

1. Allowing one person to have complete control of the finances. Better practice: Segregate key financial duties. This simply means that no one person has custody of assets or the ability to authorize and record transactions. It is the most important way an organization can protect itself from misuse or abuse of funds.

2. Letting the bookkeeper count the offering and make the deposit. Better practice: At a minimum, two people should receive, count, and record donations. Deposits should be reconciled to contribution records for accountability, and someone who doesn’t make the deposits should review the bank accounts.

3. Signing checks without looking at (or requiring) support. Better practice: Properly support all checks with an invoice or approved purchase request. Someone other than the preparer should review and sign checks. Never sign blank checks.

4. Allowing employees to use credit cards without limits. Better practice: Limit access to credit cards and establish purchase limits. Support and document the business purpose of each transaction. As with any other purchase, follow approval guidelines.

5. Failing to create a budget and monitor its execution. Better practice: Create a financial budget at the beginning of the year that includes estimates of revenue and expense for all operations and ministries of the church. Monitor the budget during the year as a financial tool to help manage expenses.

6. Failing to prepare and review monthly financial reports. Better practice: Create financial reports each month showing the income and expense activity for the month and current year. This provides the board with complete and timely financial information.

7. Ignoring the power of an audit. Better practice: Have an independent audit performed to scrutinize your financial processes. Enlist a team of business people from your congregation to review your processes, or hire a local CPA firm.

Financial controls, or internal controls, are tools that increase accountability, transparency, and integrity of financial operations. These controls are the tools that promote good stewardship.

For an in-depth assessment of your financial processes, visit ej.ag.org/financialcontrolsassessment and click on the “Financial Controls Assessment” link. This 10-minute assessment tool will review your financial processes and determine the strength of your controls. After completing the assessment, you will receive a list of resources to help improve your processes.

Rollie Dimos, Springfield, Missouri


SIDEBAR: To Audit or Not To Audit … That’s the question

One way to assess the strength of your financial processes, procedures, and controls is to put them through the scrutiny of an audit. There are a few different types of audits that can assess everything from the strength of your controls to the reasonableness of your financial statements.

Before you decide on what type of audit you need or who will perform it, ask yourself these questions:

• What type of review does your constitution and bylaws require, and how often is this review required?

• Who reads your financial statements, and what are their needs?

• Do you need a review of internal processes to assess compliance with your policies and procedures?

• Do you need to evaluate the effectiveness of a specific finance function, like payroll or accounts payable?

• Do you need complete financial statements for a bank or lending institution?

• How much funds are available for a review or audit?

Your specific needs dictate the type of audit required.

An independent public accounting firm performs a financial statement audit. The public accounting firm will ensure your organization’s financial statements comply with generally accepted accounting principles (GAAP), and a certified public accountant (CPA) will express an opinion on whether those financial statements are relevant, complete, and fairly presented.

A financial statement audit brings your church into alignment with generally accepted accounting principles. This means your church must comply with many of the rules and requirements enacted to protect shareholders.

However, qualified people within your church can perform audits that focus on internal controls, operational effectiveness and efficiency, and ways to reduce risk. Certainly, a local CPA firm can provide this same type of review, but an internal review performed by volunteers in the church can save costs. These volunteers should include qualified businesspeople who are knowledgeable about corporate governance, accounting practices, and risk management.

Rollie Dimos, Springfield, Missouri


While church leaders are busy doing ministry, they often overlook financial best practices. However, churches with a strong financial foundation are better equipped to fulfill their purpose: ministry.

Enabling churches to build a strong financial foundation and equipping them for future challenges were the primary drivers for creating The Interactive Guide to Church Finance. This extensive eBook addresses common church finance topics, such as budgeting and accounting best practices, insurance basics, church policy making, ministry financing, fund raising, and building projects. The eBook also contains a comprehensive list of additional resources, including videos, templates, and articles. This material enables pastors to dig deeper into their specific areas of interest.

“We are passionate about resourcing churches with financial tools that will help their ministry thrive,” says Andy Whaley, senior vice president of marketing and strategic partnerships. “This eBook provides a compilation of financial best practices that pastors can use to establish a strong financial foundation for their ministry.”

For more information or to download this free resource, visit agfinancial.org/ebook.

Certainly, you should utilize non-financial performance measures as well to measure effectiveness. A few examples could include attendance, salvations, Holy Spirit baptisms, water baptisms, percentage of members involved in ministry, etc.