Receipts & Expenses: Ratio of Actual to Budget

1. Definition: Divide actual receipts and expenses to the budgeted figure
2. Results:
   1. Annual receipts should be between 95%-100% of the budget goal
   2. Annual expenses must never exceed the annual receipts figure (unless there was a significant event in the history of the church – departure of pastor, major local employer shutting down, etc.). Based on the figure above, expenses should be 90%-95% of the budget.
   3. Annual expenses should be less than the annual receipts in order to have a positive cash flow at the end of the year. There should be a difference of 2%-5%.
3. Consequences:
   1. Receipts: if your receipts fall outside the 95%-100% of the budget (and there hasn’t been a significant event in the church), then you may not be budgeting properly.
   2. Expenses: these can exceed revenues for one or perhaps two consecutive years but any more than that is a sign of poor budgeting or lack of control over expenses. Both are unhealthy.
   3. The difference between receipts and expenses:
      1. This should be a positive cash flow which is added to the cash reserves at the end of the year.
      2. These reserves can be used for capital investment needs in the church.

Now What? So What?

• Compare your church’s financial ratios to the optimum range for each ratio.
• Develop a 2-3 year plan to bring your ratios in line with best financial practices.

Lead On!

Steve

Designated Funds

1. Definition: The major ministry areas should have at least half their annual budget in a fund designated for their ministry. These major ministry areas are: Worship & Music, Care & Fellowship, Discipleship & Education, and Missions & Outreach.
2. Results:
   1. Minimum: At least one-fourth of the annual budget for the major ministry areas
   2. Maximum: No more than the entire annual budget
3. Consequences:
   1. Ministries should and must rely on their budget to accomplish the main tasks entrusted to them. If a church isn’t budgeting appropriately, then the church is setting the minister up for failure.
   2. Ministries should also have a designated fund from which they can use occasional funds to do things they didn’t budget for because they weren’t aware of these opportunities when the budget was requested.
   3. Ministers must never do aggressive fundraising for their designated funds because that can undermine gifts to the budget.

Now What? So What?

• Compare your church’s financial ratios to the optimum range for each ratio.
• Develop a 2-3 year plan to bring your ratios in line with best financial practices.

Lead On!

Steve

Cash Reserves to Annual Budget

1. Definition: Divide Total Unrestricted Cash Reserves by Annual Budget
   1. Unrestricted cash reserves are also known as Net Cash Assets
   2. Unrestricted cash reserves do not include donor designated funds, only monies the church has complete spending control over; these reserves can include building reserves and emergency reserves
2. Results:
   1. Minimum: One month of the annual budget; e.g., if your annual budget is $1,200,000 then you should have at least $100,000 in reserves.
   2. Maximum: Three months’ of the annual budget. Any more than that then you can be considered hoarding and not spending money on God’s mission for your church
3. Consequences:
   1. Not having sufficient reserves can lead to financial hardships if you have a major building system need (roof replacement, air conditioner or heating system failure, plumbing disaster, etc.).
   2. Having too much in reserves can lead members to give less because they feel “the church doesn’t need my money” or the church is hoarding money.

Now What? So What?

• Compare your church’s financial ratios to the optimum range for each ratio.
• Develop a 2-3 year plan to bring your ratios in line with best financial practices.

Lead On!

Steve

Budget percentages

1. Definition: determine what percent of your annual budget goes to the three categories of church expenses
   1. Building: utilities, building & grounds maintenance and improvements, building insurance, debt payments, and anything else it takes to operate the physical structure
   2. Staffing: all personnel costs regardless of where the staff is budgeted for (you may have custodians in the building budget but they are a personnel expense)
   3. Programming: all expenses related to why the church exists including worship & music, care & fellowship, discipleship & education, missions & outreach (including funds budgeted for a denominational entity)
2. Results
   1. Building: should be about 20% (plus or minus 5%)
   2. Staffing: should be about 50% (plus or minus 5%)
   3. Programming: should be about 30% (plus or minus 5%)
3. Consequences
   1. Building: if this is too low you, may be deferring a lot of maintenance; if it is too high, you have more building than you can support
   2. Staffing: if this is too low, you may not have sufficient staff to do the job; if it is too high, you’re not using enough volunteers
   3. Programming: if this is too low, you are cutting your reason for being; if it is too high, … I’ve never seen it too high but make sure you’re paying your staff appropriately and taking care of the building properly

Now What? So What?

• Compare your church’s financial ratios to the optimum range for each ratio.
• Develop a 2-3 year plan to bring your ratios in line with best financial practices.

Lead On!

Steve

 Giving Per Adult Per Week

1. Definition: Divide weekly budget receipts by total Sunday worship attendance
2. Results:
   1. Minimum: $30 per person per week for a low-end sustainable ministry
   2. Optimum: $40-$55 per person per week for growing ministry
3. Consequences:
   1. If the average is $25 or less then the church is in financial peril; the financial heathiest churches are $40+ per week and growing year over year.
   2. Chart this giving on a weekly basis to track trends and get ahead of any downturn.

Now What? So What?

• Compare your church’s financial ratios to the optimum range for each ratio.
• Develop a 2-3 year plan to bring your ratios in line with best financial practices.

Lead On!

Steve

Donor Giving Curve

1. Definition: gather 52 weeks’ of donors’ budget gifts and the ages of the donors; add the donors’ gifts into 10-year age brackets; plot the gift totals on a graph.
2. Results
   1. Your bell curve should peak with the 50-59 age bracket
   2. Optimum: the left shoulder (20s, 30s, & 40s) should be higher than the right shoulder (60s, 70s, & 80s). Younger folk have more debt and less earnings but seniors are trying not to outlive their retirement funds.
3. Consequences: Look at your graph and move it forward 10-15 years and determine the financial viability of your church.
   1. What will your church’s budget be like in 10-15 years and are you getting ready?
   2. Is your church too dependent on seniors so that when they stop giving your church will have significant financial difficulties?
   3. Is your church developing the younger generations by establishing expectations for them in leadership & volunteer positions and doing continual stewardship education?

Now What? So What?

• Compare your church’s financial ratios to the optimum range for each ratio.
• Develop a 2-3 year plan to bring your ratios in line with best financial practices.

Lead On!

Steve