A well-reasoned budget is the key element of any church’s financial planning. It can be a static document that controls spending and tells leaders what they can and cannot do. It can also be purpose-driven and proactive.
Many churches struggle to form a budget that meets their current needs and future plans. The key to success lies in a choosing a budgeting philosophy. In my experience, there are four common approaches.
Don’t be surprised – for several reasons, many churches choose to not to use a formal budget. They might be too small. They may consider all of their costs fixed. Or, they might want to keep ministry spending flexible. Whatever the reason, this approach comes with some challenges.
Firstly, a lack of budget makes it easier to spend reactively, causing “knee-jerk” decisions. While leaders may take into consideration and choose to fund, defer, or deny appeals as they are brought to the table, without a purpose-driven plan, it is difficult to place these appeals in any order of priority.
Secondly, having no official budget can raise issues of accountability and integrity. Even in smaller congregations, you need to maintain good controls and accountability with regard to finances.
Incremental budgeting usually refers to making small increases to the previous year’s budget, assuming the church is moving in the right direction. In other words, it maintains the status quo.
However, if your church is trying to grow, you need to plan for that growth. Incremental budgeting creates a flat revenue line year over year. It assumes that people are already giving as much as they can, but that’s probably not true across the board. Since it only allows for what you’ve always done, incrementalism has a deadening effect on revenue projection and, by extension, it stifles program growth and development.
Has your church added anything new to its budget in the last five years? If so, an incremental budget could be holding you back from expanding your ministry.
Times change, new generations have new interests, but many churches haven’t changed their program offerings in decades. Zero-based budgeting forces you to evaluate and legitimize your programming on a regular basis. Starting from a “zero base,” this method asks leaders to review each of the church’s function’s needs and costs (aside from the obvious fixed costs) and build the budget around what is needed for the upcoming period.
Zero-based budgeting also opens up the opportunity for broader involvement. This is important for a few reasons. For one, it builds ownership into the process. When you can get broad participation in issues surrounding finance in the church, it helps people to buy into the process and the vision. When you get broad buy in, you will get sacrificial, joyful support. The second reason is that this approach shows integrity and accountability. It forces leaders to evaluate programs on a regular basis and encourages efficient and effective operations.
Based on my experience, this is a good approach. However, it’s challenging to budget this way every year. For larger churches, it could be done every three to five years. If your church has never done zero-based budgeting, you could try it as an exercise to see what people suggest. You might just find reality in one of your leader’s dreams!
The preferred method for churches is proactive (or “purpose”) budgeting. It changes the question from “what can we do” to “what should we do?” It assumes an increased potential to resource purpose.
Healthy churches plan proactively. Their primary focus is purpose-driven, and a few main principles drive their budgeting process. Firstly, God desires the church to grow – or, restated, God wants the church to be more effective and dynamic in ministry. Secondly, God pays for what God orders – or, God provides resources for what the church is called to do. If you can believe it, most churches are probably operating well below their financial potential.
Practically speaking, proactive planning also builds efficiency into the process of budgeting and operating the church. If you are still engaged in an incremental process and projecting a flat revenue line year-over-year, it might be time to evaluate the process and move to a new paradigm.
Michelle D. Harder is a Senior Consultant with The Goldie Company. She has more than 20 years of experience in fundraising and non-profit development and specializes in faith-based fundraising.