Church Management Academy Blog - Knowledge, Tips and Tools

By Michael Castrilli

Church Priorities + Budget = Results

Show me your budget and I can tell you how you spend your time, where you focus your resources, and what you believe are the greatest priorities for your church and programs.

Think about your personal spending. If you showed me your latest bank statement or credit card bills, I would be able to tell you how you spend your time and where you focus your personal resources. All I would have to do is take your income and expenses for the statement period and assign categories to the ones we see repeated.

For example, I may see expenses for great restaurants (dining), a gym membership (fitness), doctor visits or medications (medical), and ticket purchases for shows and concerts (entertainment).

On the incoming side, I may see a check deposit from your job (salary). If you provided two or three months of data, I would have a good idea about how you prioritize resources.

Tip 6: The budget is a reflection of your pastoral priorities

The same can be said of your church priorities. What are the categories of income and spending that the parish receives and spends? Most likely, the largest income category for the church includes offertory collections while staff salary and benefits drive the majority of expenses. These categories make sense as priorities. Without collection income, the church would have virtually no resources to operate besides savings or any endowments. Salary and benefits also make sense because of the need for the most critical resource for any organization—people to accomplish the work.

This makes analyzing the next categories of spending very important. After salary and benefits, what is the next highest level of spending? And next? And next? This is when budget analysis can really help determine a way forward (More on this topic later in the week).

There is no doubt that church leaders are busy people, so the next step in the process is to take the data that has been collected and focus your time. Focusing on the “right” areas of the budget means prioritizing your time so that you spend the greatest amount of effort in those areas that will provide the most significant benefits. A nice tool to deploy during this phase of the process is to calculate the Budget Category Impact Percentage (BCIP). Tomorrow, we will discuss how to calculate the BCIP!

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By Michael Castrilli

The Benefits of Church Budgeting

My experience working with ministers is that for many, developing a church budget is a necessary, yet stressful and time-consuming exercise. People resist or even fear the topic because of seemingly complicating processes or past negative experiences. Even with personal finances, many people grow up learning that developing a budget is good practice but a constraining activity designed to prevent or control people from doing all of the things they want to do.

So, why spend the time working on the church budgeting process? Below are six benefits:

Church Budget Benefits

The budget is the plan and tool that will help you…

Connect resources to parish priorities
Create a plan to allocate money coming into the parish and expenses to be paid
Ensure that plans stay on track
Empower effective financial decisions
Bring collaboration, communication, and buy-in
Strategize for the future

By Michael Castrilli

The Language of Church Finance

At times, church budgeting can feel like learning a new language – new words, definitions, even new processes. Finance can feel like learning grammar for the first time. But, do not be afraid. I think it can look more intimidating than reality.

I am not saying that one can become a CPA overnight, but there is a great deal of empowerment that comes from learning the nuts and bolts of finance. This also means that depending on your role at your church, you will have to determine what is the right level of education you need to manage your church finances.

One of the main drivers that Dr. Chuck Zech and I wrote our book, Parish Finance: Best Practices in Church Management was to help pastors and parish administrators translate the language of financial management to their environment. I thought it might be helpful for me to put together a quick list of common terms to get people excited! Hopefully, some of these will help you translate this language and not feel overwhelmed, but empowered!

Accounting – Accounting is the systematic means of recording, managing, reporting, and communicating financial actions of an organization (Parish Finance, Chap 9).

Budget – Planning and management tool for executing priorities by projecting, allocating, and managing the money you receive and the money you plan to spend (Parish Finance, Chap 1).

Cash Flow Budget – Financial plan that displays anticipated actual income/receipts and expenditures for a given period. Unlike a linear budget that spreads income and expenses evenly over a period, the cash flow budget presents a realistic month-to-month (or week or day) projection of cash received and cash to be expended (Parish Finance, Chap 5).

Fiscal Year (abbreviated “FY”) – Period of time for which an organization plans the use of funds and reports financial status (Parish Finance, Chap 2).

Financial Management – Planning, organizing, directing and controlling the financial activities of the organization. Focuses on generating financial information that can be used to improve decisions (Parish Finance, Chap 9)

Generally Accepted Accounting Principles (GAAP) – Set of rules that must be followed for the organization’s financial statements to be deemed a fair presentation of the organization’s financial position and results of operations (Parish Finance, Chap 9).

Internal Financial Controls –– a process for assuring achievement of an organization’s objectives in operational effectiveness and efficiency, reliable financial reporting, and compliance with laws, regulations, and policies (Parish Finance, Chap. 8).

Master Budget – Comprehensive financial plan that includes operating and capital budgets and parish accounts and investments (Parish Finance, Chap 2).

Reallocation – The adjustment of resources between or within budget categories, also referred to as fund reprogramming (Parish Finance, Chap 7).

Segmentation of Duties – An approach to internal financial controls based on shared responsibilities related to the collection, deposit, disbursement, and reconciling of parish funds (Parish Finance, Chap 8).

Variance Analysis – Reporting tool to review, analyze, and take action based on the difference between budgeted and actual income and expenditures (Parish Finance, Chap 7).

By Michael Castrilli

Prioritize Your Time

There is no doubt that church managers are busy people. As you develop a budget, focusing on the “right” areas of the budget means prioritizing your time so that you spend the greatest amount of effort on those areas that will provide the most significant benefits. A nice tool to deploy during this phase of the process is to calculate the Budget Category Impact Percentage (BCIP).

If time is money, the BCIP calculation is a simple formula that can assist you to quickly assess the relative size of a specific budget category as compared to the total receipt or spending for the overall Income or Expense category. If you calculate which categories have the greatest impact on the budget, you can spend the majority of your time focusing on those areas.

Let me use a simple example of revenue categories to show you what I mean:

St. Jane’s Church

At the fictional parish of St. Jane’s, the church receives revenues from the following sources:

Next, calculate the BCIP by dividing each Revenue Category by Total Revenue.

Total Collections ($357,000) divided by Total Revenue ($378,300) = BCIP (94%)
Total Holyday Collections ($16,000) divided by Total Revenue ($378,300) = BCIP (4%)

Using a spreadsheet or other mode to make calculations, you can make the calculations for each category quickly by dragging the formula down the column. As you review the information, what are your observations?

Like most churches, Sunday Collections drive the majority of the income for St. Jane’s. You can see that items like Flower Donations and Bulletin Advertising make up only a tiny proportion of the overall revenue.

“So, why does this matter?”

The problem is that many churches spend an inordinate amount of time on reviewing/estimating/analyzing categories that are not driving large portions of the budget. If you have two hours to spend on a budget analysis, focus on the largest drivers of revenues and expenses. By the way, the same process used above for revenues should also be used for expenses. Most likely, after you calculate the BCIP on expenses, you’ll find that salary and benefits make up a large proportion of expenses, and this makes sense because people are your most important resource! Take the analysis to the next step – what is the next expense category that is driving expenses? And the next?

Tip 7: Prioritize Time – Calculate a Budget Category Impact Percentage (BCIP)

Armed with this information, you can begin by reviewing those categories with the largest impact on the budget. I am not arguing that all budget categories are not important. But, with limited time, focus on the income or expense categories with the greatest impact on the budget.

Read More Church Finance 30/30 Tips

Portions of this text come from Michael J. Castrilli and Charles E. Zech, Parish Finance: Best Practices in Church Management (New York: Paulist Press, 2016) Chapter 5.

By Michael Castrilli

Church Budget Phases 101

There are three main phases of the church budget process. All budget processes have components of these three phases. Therefore, by understanding them, you’re on the right track to managing your church budget process with ease.

Phase 1: Budget Formulation

The budget formulation stage includes gathering relevant policies, soliciting information from staff and parishioners, documenting assumptions, and projecting revenues and expenses. By developing a resource plan to put priorities into action, collaboration and transparency are critical to this phase of the budget process to ensure openness, buy-in, and accountability by the entire parish community.

Phase 2: Budget Execution

Once the budget is approved, budget execution is the phase when the plan is put into action. The key features of budget execution include establishing and communicating clear policies and procedures for the receipt and disbursement of resources and ensuring financial transparency.

Phase 3: Budget Control

Budget control processes and procedures are established to ensure that the parish meets planned targets for revenue and expenses. If challenges arise or circumstances change for any reason, tools like variance analysis help parish leaders assess the impact of changes and proactively mitigate financial risks.

Now that we have a basic understanding of the budget phases, next week, we will review the different components of what we will call – The Master Budget!