Understanding church finances is essential to maintaining the overall health of any church. A leadership team’s ability to fulfill their mission is deeply connected to how well they steward resources and manage their church’s funds. When done correctly, churches can use their finances to reach more people, make more disciples, and have a greater impact on their communities!
Let’s take a look at ten simple church accounting practices that will help you learn the basics of how to manage church finances, while also promoting biblical stewardship among your team.
One of the first steps for managing your church’s finances is to map out your current expenses. As Benjamin Franklin wisely said, “Beware of little expenses. A small leak will sink a great ship.”
With the help of your church’s financial software, start by listing out all of your operating expenses. These include items such as:
The donations, gifts, and any other contributions that your church receives make up the annual income. Most income comes from donations in the form of cash, checks, and online giving. Other donations to track include fundraising campaigns, stocks, securities, and non-cash contributions such as household items, vehicles, boats, etc.
Fortunately, the trend of accepting online donations and using church accounting software has streamlined the process for keeping tabs on your church’s income! The best online giving solutions, such as Subsplash Giving, will automatically record your incoming donations for you and allow you to easily generate giving reports. They will also allow you to accept and track payments for non-charitable transactions, such as event tickets or merchandise.
Based on your historical expenses and contributions, you can begin the process of forecasting your church’s future income. When making your projection, pay close attention to patterns in your attendance and giving.
A good financial practice is to err on the side of caution when projecting income. Be realistic with your estimates. You should also encourage your donors to set up recurring gifts through your online giving provider. This allows them to schedule their regular tithes and offerings, giving your church access to more accurate data about future income!
Your budget should be based on your church’s expenses and projected income, but it should also be driven by your vision and goals. Use your income forecast as the base to allocate funds to different ministries to reach their individual and collective goals.
One place to start is asking each ministry department leader—like your missions director or youth pastor—to submit their own department budget based on their goals, needs, and resources. It’s important not to assume that your staff and other leaders understand how to create budgets, so provide financial training for your team! Doing this allows your leadership team to take ownership of their budget and better understand the impact of their financial decisions, rather than just simply administering a handed-down budget.
If your church doesn’t already offer online giving, now is the perfect time to start! Studies show that adding an online giving solution dramatically increases overall giving by an average of 32%! Donors appreciate the convenience and security of online giving through their church’s mobile app or website, as well as text-to-give. They can also easily view their online donations and download their end-of-year giving statements.
For your church finance team, online giving simplifies administrative tasks, such as sending out giving statements or pulling financial reports. It also helps your church anticipate future donations through regular recurring giving.
We can always expect to be faced with the unexpected. Despite all of the budgeting and planning, unanticipated expenses occur each and every year. This is why finance experts suggest creating an emergency fund equal to three to six months of typical expenses. You’ll also want to clearly define what kind of situation constitutes an emergency in order to protect this cash reserve from being used for non-emergency purposes. When not fully used, this reserve fund can increase annually and will help protect your church from budget shortfalls.
A church’s financial committee is usually made up of members who were assigned or elected to steward the church’s financial resources. They’re responsible for ensuring that the church’s finances are being handled responsibly, ethically, and in alignment with the church’s vision.
Part of this responsibility should include creating a written oversight policy that includes the following:
Being good stewards of your church’s finances requires creating regular church financial reports for the finance committee. These reports should be presented each quarter, and should be written in a way that is easily understood. Church leaders should also have access to review these reports and ask questions if something seems amiss.
An incredible 80% of church fraud cases go unreported every year! Financial reports and reviews are key safeguards against theft, fraud, and embezzlement. Any concerns that are raised should enact oversight policy procedures to ensure accuracy and accountability.
Many churches take on debt throughout their lifetimes for a variety of reasons—to help when getting started, to allow them to grow and expand, or simply in order to keep the church open and operating. But long-term or growing debt can cripple a church’s ability to effectively reach their goals.
This is why it’s important to have a strategy for paying down church debt. This should include dedicating a portion of the annual budget to debt reduction, as well as planning capital campaigns. Being debt-free will allow the church to explore new growth opportunities and increase their ability to impact their communities in positive and practical ways!
Today’s church donors expect transparency and accountability; they appreciate understanding how their contributions are impacting their communities. At the end of each calendar year, hold a meeting with your congregation to:
Talking about money and finances is not always easy to do, but the reality is that your church’s finances are a critical part of being able to complete your unique mission. Understanding where your church is financially, sharing your goals, making safety protocols, offering tools that streamline giving, and sharing your accomplishments will all go a long way in encouraging donors to give even more willingly to your church!
The church finance best practices covered in this article are just the tip of the iceberg! To get even more advice on how to be a good steward of your church’s resources, download our Church Budgeting Guide today. This free 27-page guide contains all of this and much more:
The Ultimate Engagement Platform™ can help you create deeper connections with your church community with mobile church apps, live streaming, group messaging, and online giving. Want to see it in action? Visit the Interbay Community Church site or download the ICC app. Have questions or need more information, let’s chat!