Personal Coaching-Why (part 1 of 2)

As I talk with seasoned pastors and leaders, almost all of them tell me it is increasingly harder to be a pastor due to the variety of demands. They need to know more, do more, and be more in the church while being an excellent spouse, parent, and civic leader. Pastors need someone to help them and a coach or mentor can help. A coach need not be a paid counselor; a coach can be something as simple as a good friend – but the critical issue is complete honesty.

  1. Set priorities. All too often a pastor will place professional ahead of personal time and the family suffers. A coach can help the pastor determine which meetings he or she needs to attend and which family issues need attention.
  2. Be a release valve. Pastors are really good at hiding. They have to be so that they don’t betray confidences. But at some point they must open up to someone or else they might explore emotionally. A coach can provide a gentle and confidential opportunity for a pastor to share things he or she can’t share with anyone else and then gain some perspective from another person’s view.
  3. Be accountable. Who looks the pastor in her or his eye and asks for the truth? Other than a spouse, not many (if anyone). A coach can keep a pastor emotionally honest by asking and even demanding truth-filled answers, not shallow replies that pastors can sometimes get away with.
  4. Establish goals. Someone needs to help a pastor determine his or her professional and personal goals. Staff and even a church personnel committee rarely understand the complexities of a pastor’s role. A mentor can challenge a pastor’s self-establish low-hanging goals and establish higher goals. The coach must then follow up throughout the year on these goals.
  5. Be an understanding ear. Sometimes a coach just needs to listen. Sometimes a pastor just needs to talk about what is going on in his personal and professional life. Sometimes a coach doesn’t need to coach but just hear. Sometimes pastors need someone who has been there and is isn’t critical of what is happening. Sometimes a coach just needs to be a pastor.

A coach provides detached distance, non-emotional advice which is needed so much today for pastors and frankly for everyone in leader roles. If you don’t have a coach, get one and listen.

 

Lead On!

Steve

Monthly Financial Statements

My “Intro to Accounting” professor taught me some basic concepts which have guided me ever since. They are simple principles but vital to any and every organization.

  1. Always release a complete balance sheet and revenue & expense statement
    • These are the two basic financial statements. At a minimum these should always be released. There are a multitude of other financial reports but these are the minimums. These statements measure different things:
      • A balance sheet is a financial picture of the organization at a specific date. It shows all cash, debts, and restricted funds of a church.
      • A revenue & expense statement is shows how the organization is doing this fiscal year. It should have columns for the total annual budget; the monthly actual & budget figures; and the year-to-date actual & budget figures. Collectively these numbers indicate your current year’s financial status
  1. Never hide or not-release financial figures, even if they will elicit lots of questions
    • Never, ever, NEVER hide anything, period (.).
    • All numbers will come out. You need to be in control of bad AND good news. Hiding numbers only makes you look like you’re hiding things. That will always hurt you.
    • The numbers may look bad but the numbers are not about you but about the organization. Sharing everything allows you to keep your integrity. If the finance office has lost its integrity, it needs new staff.
  2. Release the data by the 15th of the subsequent month. To delay longer than that is to release “stale-data.”
    • There is no reason to delay releasing monthly financial data. Bank statements are available online so the bank reconciliation can even be done on the 1st of each month. There are going to be journal entries and maybe some backdated checks, but frankly, the financial office should be so update that closing each month is fast and routine.
    • Releasing financial data 30 days or later communicates that the finance office does not know what it is doing and/or that things in the financial area are unnecessarily complicated and needs help.

The bottom line, release financial data accurately and in a timely manner.

Lead On!

Steve

 

Cost Accounting – Pros & Cons

Cost accounting is the practice of determining how to divide an expense between various budget line accounts. There are some expenses which are easy to cost account because it can be tracked without much effort:

  • Postage
  • Photocopies
  • Special Office Supplies

There are some that are not easy because the calculations are quite difficult and often require a judgment call:

  • Electricity
  • Building Maintenance

The main question is, What Added Value is there to Cost Accounting?

In most instances in church accounting, there is almost no value added to do cost accounting. When asked to do cost accounting, my question is “Why? What are you going to do with the info?” For small to mid-sized churches, cost accounting is rarely recommended. If a ministry has a large mailing or printing a lot for an event, that can be guesstimated and charged to that account if necessary. For larger churches, I recommend having an office expense account for most items (supplies, printing, etc.) and then keep track of special event expenses so the finance office can charge them appropriately.

Doing a lot of cost accounting only occasionally helps a church with its financial decision-making but usually it is not worth the day-in and day-out effort. In my opinion, it detracts from the routine ministry of the church. The ONLY exception is for special events and activities which you do need to track the expenses to know if this was financially worth it, if it should be done again, and if it should be done differently next time.

Before you enact across the board cost accounting in your church, please ask yourself if there is significant value added to doing it for everything, every day.

 

Lead On!

Steve

 

Designated Funds and UPMIFA (part 2 of 2)

Every church I’ve worked with has designated funds which are dormant. The long-standing rule of thumb was that to re-purpose the money in these funds was that each donor needed to be contacted to request permission to alter the use of their gifts. That is a good rule to use but in many cases, this is not practical or even possible. Fortunately, there is a legal alternative. It is called UPMIFA: Uniform Prudent Management of Institutional Funds Act.

UPMIFA has been passed by almost every state legislature (there are a couple of holdouts) and it is virtually the same in each state. Look at your state’s legal code for the specific language – I’ll use the one from Virginia (where I live) for this post. In all instances the church must consult with a court or the attorney general. If the request is reasonable, they courts will agree to the church’s desires.

Below is the actual law from the Code of Virginia. Here are the salient points:

  1. Donors can change the purpose of their gift but it still must be used for a charitable purpose
  2. Judges and Attorneys General can change the purpose of a fund but it still must be used for a charitable purpose
  3. An institution can change the purpose of a fund by working with the Attorney General if the fund is less than $250,000
  4. An institution can change the purpose of a fund by notifying the Attorney General if the fund is less than $50,000, is over 20 years old, and it will be used for a similar purpose
  • 55-268.16. Release or modification of restrictions on management, investment, or purpose.
  1. If the donor consents in a record, an institution may release or modify, in whole or in part, a restriction contained in a gift instrument on the management, investment, or purpose of an institutional fund. A release or modification may not allow a fund to be used for a purpose other than a charitable purpose of the institution.
  2. The court, upon application of an institution, may modify a restriction contained in a gift instrument regarding the management or investment of an institutional fund if the restriction has become impracticable or wasteful, if it impairs the management or investment of the fund, or if, because of circumstances not anticipated by the donor, a modification of a restriction will further the purposes of the fund. The institution shall notify the Attorney General of the application, and the Attorney General shall be given an opportunity to be heard. To the extent practicable, any modification shall be made in accordance with the donor’s probable intention.
  3. If a particular charitable purpose or restriction contained in a gift instrument on the use of an institutional fund becomes unlawful, impracticable, impossible to achieve, or wasteful, the court, upon application of an institution, may modify the purpose of the fund or the restriction on the use of the fund in a manner consistent with the charitable purposes expressed in the gift instrument. The institution shall notify the Attorney General of the application, and the Attorney General shall be given an opportunity to be heard.
  4. If an institution determines that a restriction contained in a gift instrument on the management, investment, or purpose of an institutional fund is unlawful, impracticable, impossible to achieve, or wasteful, the institution, without application to the court but with the consent of the Attorney General, may modify the purpose of the fund or the restriction on the use of the fund in a manner consistent with the charitable purposes expressed in the gift instrument if the fund subject to the restriction has a total value of less than $250,000.
  5. If an institution determines that a restriction contained in a gift instrument on the management, investment, or purpose of an institutional fund is unlawful, impracticable, impossible to achieve, or wasteful, the institution, 60 days after notification to the Attorney General, may release or modify the restriction, in whole or part, if:
    1. The institutional fund subject to the restriction has a total value of less than $50,000;
    2. More than 20 years have elapsed since the fund was established; and
    3. The institution uses the property in a manner consistent with the charitable purposes expressed in the gift instrument.

 

Lead On!

Steve

 

Designated Funds and UPMIFA (part 1 of 2)

Churches are the beneficiaries of designated gifts – people who give to specific causes that touch their heart. This can be scholarships for students to go on mission trips or to college, to pay for children’s supplies and events, and scores of other ministries. Used wisely, designated funds can enhance a church’s mission by adding extra dollars to a church’s budget.

Every designated fund must have a specific purpose (why it was established and what it is to be used for) and a sunset clause (a determination of when the fund will cease to exist). However, many churches have funds that don’t have either a purpose or a timeline.

I challenge each church to go through all of it designated funds and write down its purpose and when it will cease to exist. The good news is that most church accounting software has a section in the chart of accounts where a memo can be written about each fund. Use that memo tab to write in this info so that this knowledge can be passed from one person to another and not lost.

Then, use you designated funds to supplement your budget needs. Use them as much as you can and encourage people to give to them – over and above what they give to the church’s operating budget.

However, even doing all that, churches are going to have funds whose purpose ceased to exist long ago. There is legal help for that and I’ll describe it in the next post.

 

Lead On!

Steve

 

Chart of Accounts (part 4 of 4)

Large churches can have a complicated accounting structure but I strongly recommend a simple one. Fortunately all good accounting software allows for flexibility. The greatest area which needs flexibility is in expenses. For instance, some churches have large children’s departments with budgets for the different age levels (preschool and children) or even further sub-groupings (infant, preschool, early elementary, elementary, and middle school, and high school).

Some churches have even further needs for classification because they are multisite churches. For instance, they may want to track expenses across campuses for each classification (how much did we spend on craft supplies for our children across all campuses?) but also expenses within a campus (how much did we spend all the preschool program at campus X?).

This can be accomplished by adding a three digit department number at the front of the five digit accounting number. The accounting department can do an inquiry to get the financial info requested for each campus and/or budget line. Multisite accounting can be as simple as assigning a department number to a campus so that inquiries are made easier.

The critical path is to assign account and department/multisite numbers in a logical pattern which later makes it easy to retrieve data. If there isn’t a good pattern, then getting information will be difficult and that works against what you’re trying to accomplish: getting financial data to help you make better financial decisions.

 

Lead On!

Steve

 

Chart of Accounts (part 3 of 4)

A chart of accounts must start with the end in mind. The end is always the reports that you want to generate and use for decision-making. What data do you need and how should that info be presented? That determines the format of the chart of accounts. For example, all information about age-level expenses in a church should be in the same area of the CoA and not spread out everywhere; in fact, all the children’s and youth expenses should be grouped together and then sub-totaled which then totaled with other age-level expenses let the reader know how much was spent in that category.

The numbering system in a CoA is very logical. I recommend that accounts have no more than five (5) numbers but I’ve seen some as short as three numbers and as long as 16 digits. Five is a happy medium!

Here is the basic accounting numbering system which is used pretty much everywhere in the US (where AICPA controls the accounting system).

1XXXX – Cash

2XXXX – Payables, Restricted or Designated Funds

3XXXX – Retained Equity or Net Assets

4XXXX – Revenue & Receipts

5XXXX – Usually reserved for revenues related to special projects

6XXXX – Expenses

7XXXX – Expenses

8XXXX – Expenses

9XXXX – Usually reserved for expenses related to special projects

 

The first digit is the accounting classification. The rest of the digits can be used for sub-categories and other classifications. For instance:

61XXX Missions

65XXX Worship

68XXX Care & Fellowship

70XXX Discipleship-General

71XXX Preschool

72XXX Children

73XXX Youth

74XXX College

75XXX Young Families

76XXX Median Adults

78XXX Senior Adults

81XXX Office & Administration

85XXX Building & Grounds

88XXX Personnel

 

Finally, when the system is set up, the last digit is usually zero (0) so that additional lines can be added over time as needed without having to renumber the entire CoA.

Be familiar with the standard accounting numbering system so that when you see an account number, you’ll have an idea of what its accounting classification is. It will help you when you meet with the finance committee.

Larger churches have more complicated accounting structures. See part 3 for larger church department and multisite accounting.

 

Lead On!

Steve

 

Chart of Accounts (part 2 of 4)

In part one, I talked in generalities about financial statements. This post is description of each of the major areas.

Balance Sheet (no other name for this doc)

  • Assets
    • Cash on hand in bank and investment accounts
    • Petty cash
    • Sometimes it lists cash you’ll get within the next 12 months
  • Liabilities
    • Payables – usually payroll taxes and payroll deductions which will be sent to the proper recipient the next month. These should never sit for month than a month.
    • Debts – long and short term debts for mortgages and building loans. Each debt should be listed separately so you’ll know what it was for. This must be updated each month as you pay down your debt.
    • Temporarily restricted funds – these are typically restricted by purpose (what they are for). Usually these monies are spent within 12 months for a specific cause such as mission trips, children’s and worship events, etc. Sometimes funds are there for years but each one should have a “sunset clause.” (see my UPMIFA blog post regarding what to do with “old funds”)
    • Permanently restricted funds are restricted by time (how long they are set aside). Usually these are put into an endowment fund because they time and purpose is longer than 12 months.
  • Net Assets (also known as equity, retained equity, or owner’s equity)
    • This is the total cash balance of what the church has accrued since it was started. Often there are two figures for this: the current year-to-date earnings and the prior years’ earnings.

Profit & Loss Statement (also known as an Income Statement and Statement of Revenues & Expenses)

  • Revenues or Receipts
    • This section is the total income for the church. I strongly encourage that this section have only revenues from the main purposes of the church. Include in this category only tithes, offerings, and other undesignated budget gifts.
    • You can have a subsection for other receipts such as interest, building use receipts, etc. but this receipts are incidental revenues.
  • Expenses
    • These are budget expense lines grouped into categories with a similar purpose. Churches have several broad categories and the most common ones are:
      • Worship & Music
      • Care & Fellowship
      • Discipleship & Education
      • Missions & Outreach
      • Office Administration
      • Building & Grounds
      • Personnel

 

Lead On!

Steve