Church budgets come in all shapes and sizes. Trying to form fit a best practice to your church budget isn’t the right approach. All church budget methods, tactics, and tools that we discuss must be right-sized for your congregation. The same is said when choosing which budget method you will use to formulate/develop the budget.

As we have discussed previously, the budget formulation phase is when you gather relevant policies, solicit information from staff and parishioners, document assumptions, and project revenues and expenses.

With the formulation phase, there are a variety of methods you can use to build the budget. No method is intended as a one-size-fits-all solution. My recommendation is to pick a method, or a hybrid of methods, to build the budget.

Budget methods all have advantages and disadvantages so understanding what you are trying to accomplish is essential. To choose a method, ask the question, “what is the goal that we are trying to achieve as we build this budget?”

For example, are you clear on the amount of money you have available for a project? In this case, top-down budgeting might work well. Are you seeking to understand each layer of the budget more clearly? The bottom-up method may be the best method for this question. No one can answer these questions but you (and your staff), depending on the context of your situation.  My point is that to evaluate your options, know what your goal is, and then go for it!

As faithful followers of this blog (thank you!), you know that I have written about the advantages and challenges of a variety of budget methods. So as not to repeat content on the blog, feel free to read the short method descriptions below, and click the links for more information!

Top-Down Budgeting – I know it may be intuitive, but a top-down approach to budgeting is when resources are allocated from a high-level and the details are then worked out based on this amount of funding. The advantage of top-down budgeting is that the method is relatively simple. It does not necessarily require labor-intensive cost estimating because the overall amount of money that will be budgeted is established.  Read More on Top-Down Budgeting

Incremental Budgeting – Incremental budgeting is the simplest technique to implement and is common across many churches as budgets are developed. Incremental budgeting involves determining a percentage increase or decrease in funding and then multiplying this percentage across categories. This technique has the distinct advantage of not requiring complex forecasting or cost estimating and can be applied across a wide range of data. The disadvantage is that you may be over/under-budgeting specific categories.  When budget categories are relatively consistent over time, this can be an effective method.

Bottom-Up Budgeting (Zero-Based Budgeting ZBB) – This method involves building a budget from the lowest income/expense elements and then rolling them up into the total budget request. From zero, each income and spending category is developed and justified. Read More on Bottom-Up Budgeting!

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Which budget method(s) do you use when you create your church budget?  How do you estimate revenues and expenses?

There are a variety of methods you can use to create an effective church budget. Three common techniques:

• Top-down budgeting
• Bottom-up budgeting
• Incremental budgeting

Let’s begin with top-down budgeting.

Top-Down Budgeting

I know it may be intuitive, but a top-down approach to budgeting is when resources are allocated at a high-level and the details are then worked out based on this amount of funding. To use a simple example, think about your salary. Each month, your employer gives you a salary but does not dictate how you spend that money. Unless a pay raise is on the horizon, you know how much money you have available to spend and you work out your budget based on that amount of money.

The same method can be applied to organizations. At certain organizations, a leader will establish how much money will be allocated for a given project and then the budget is created from that level of funding.   On the other hand, maybe you receive a donation from a benefactor and you are going to budget those resources using this method.

Like all budget methods, there are inherent advantages and disadvantages.

The advantage of top-down budgeting is that the method is relatively simple.  It does not necessarily require labor-intensive cost estimating because the overall amount of money that will be budgeted is established.  Using this method, money is then allocated to categories of spending.  One disadvantage to top-down budgeting is that you might be forcing or form-fitting various cost elements to meet your target.

Empowerment and Buy-In Go Together

Top-down budgeting can work really well when you know the amount of money you are willing to allocate or you have a set amount of funding being given by an external source. The key is to involve and empower others who will help you manage the budget so buy-in is established early in this process. As a general rule, if the top-down method is applied to budget formulation, it is important for those who are given responsibility for managing the budget to propose and justify enhancements or reductions for the budget they have been allocated.

A simple method would involve asking the Director to detail how she plans to spend the money AND allow her an opportunity to propose changes to the amount that has been allocated.  You may now be saying, “Ok, but staff will always seek more resources, right?” Again, this is where collaboration is so critical in budget matters. When staff members are empowered and know that they have input into a budget’s creation, it is much less likely that unreasonable requests are proposed.  Budgets that are developed secretly or through closed-door methods serve no one well and actually diminish staff morale. Top-down budgeting works well when those who will manage the budget are involved in the process.

Learn more about the benefits of church budgeting!

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Previously we have discussed how to construct a church financial narrative with impact and ease. However, we all know that writing about money is simple when finances are in great shape. Inevitably, church financial challenges occur and also need to be communicated.

Address Financial Challenges with 3-R

For example, from a decrease in collections, the parish drew a larger percentage of endowment funds than in previous years. Responding to financial challenges can feel overwhelming, but consider breaking the problem down using the 3-R Approach. The first step is to Reflect what has occurred. What is the actual data telling you about what happened? The second step is to Review reasons or circumstances and consider any changes that are necessary for the future. The third step is to Refine any policies and procedures to mitigate the likelihood that the problem will occur again.

When reporting a challenging situation, keep the narrative simple, straightforward, and offer answers to the relevant “W” questions.

• What happened?
• Who is/was involved?
• When did it take place?
• Why did it happen?

So, we have constructed the financial narrative, we have addressed any challenges, now what? Let’s choose the most compelling visuals to include in your financial reports. Next week we discuss choosing visuals to communication financial understanding!

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Which budget method(s) do you use when you create your church budget?  How do you estimate revenues and expenses? Last week we discussed top-down budgeting! This week, let’s take a look at bottom-up budgeting.

Bottom-up Budgeting

Sometimes referred to as zero-based budgeting, the bottom-up method involves building a budget from the lowest income/expense elements and then rolling them up into the total budget request. From zero, each cost element is developed and justified. Therefore when the budget is complete, the program manager has a thorough understanding of the budget under their management.

Advantages/Challenges

The advantage of this method is that each cost element is scrutinized and justified in order to develop the budget. The challenge to this type of method is that it can be time-consuming due to the comprehensive nature of building from zero up.

Therefore, the leader might consider using this method for one department at a time or taking a bottom-up approach every other year so that the process is not overwhelming for those involved in building the budget.

For example, maybe you start with the Music program, and the following year, review the Religious Education program. When a budget has been developed using the bottom-up approach method, the insight into a program/department is typically very good.

Another advantage of this method is that the detailed analysis provides a level of granularity not necessarily achieved by top-down budgeting. With top-down budgeting, the dollars are broken out from a broader perspective, whereas the bottom-up method creates a more precise estimate of program costs.

Can you figure out what the greatest challenge to implementing a bottom-up budget method? You guessed it; the method can cause anxiety. People may feel like you are scrutinizing them and get defensive. Help staff to understand the answer to questions like, “Why me?” or “Why my program?” Be truthful. If you are asking for staff to build a bottom-up budget because you are concerned about overspending, let them know. We often think that we don’t want to concern staff. But guess what? They become concerned anyway.

When you answer the “why?” question truthfully, watch as build buy-in and rapport. People are happy to help build a great budget when they are clear about expectations and outcomes.

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Portions of this text are excerpted from Parish Finance: Best Practices in Church Management (Mahwah: Paulist Press, 2016), Chapter 4