7 Best Practices for Church Finances
Too many churches find themselves scrounging for money when it comes time to invest in their programs and activities. Ultimately, your ministry is fully capable of collecting all the money it needs to thrive and be a pillar in your community’s faith. Of course, that takes due diligence, the right approach, and commitment to a unique plan for church finances.
If you want to put your church on the path to a strong financial foundation, follow these best practices to begin reshaping your approach.
1. Create a Budget (and Stick to It)
A budget is the cornerstone of healthy finances. Without a specific and actionable budget, the money will go unmeasured and mismanaged. When you budget, you’ll be able to see exactly where your money is going and better control expenses.
On average, you should be spending no more than the following in each of these categories:
- Personnel: 33% to 45%
- Facilities: 25% to 30%
- Administrative: Less than 10%
Spending more than you should? Look for places to cut back in each of these categories so that you can devote more money to the areas that matter, like running your church’s community programs.
2. Track Every Cent for Church Finances
While your church shouldn’t feel like it’s pinching pennies, it is critically important to understand where your dollars are going. It is impossible to appropriately manage your budget unless you are diligently tracking all donations that come in and all expenses that go out.
With those numbers in front of you each month, you can ensure that you’re hitting your benchmarks throughout the year to avoid surprises when the end of your fiscal year comes around. You should also be looking at past trends so you can make revenue projections for the coming year and stay ahead.
Remember your church isn’t working on a steady salary, so you have to account for the “summer slump” and donation spikes so you can manage your money accordingly.
3. Budget for Debt and Investments
Your budget should factor in absolutely every place where your money will go or needs to go, and that includes paying down debt and re-investing in your church. From accounting for building maintenance to paying down any loans you have taken out to grow your church, you need to make these expenses part of your plan.
4. Earmark for an Emergency Fund
Just as emergency funds are emphasized in personal finance to cover unexpected expenses, your church should have a “rainy-day” fund of its own. The average church sets aside about 2% for this fund, and that’s a good benchmark to start out with.
If you’re not convinced, consider the implications of a big unexpected expense. Operating without a cash reserve means a necessary repair or other financial burden could throw your church into debt, forcing you to seek out loans or exhausting other lines of credit.
Additionally, a portion of your rainy-day funds can also be used to support a project you decide to launch, shortening the fundraising period and helping your church grow more efficiently, taking advantage of opportunities when they’re ripe.
5. Ensure Responsible Stewardship
One of the best ways to promote giving is to show your church’s values in practice each and every day. Making sure that you manage donations properly is key to doing just that. Spending your donations wisely helps show your congregation that you are making the most of every dollar they donate.
Are you extra attentive in making sure that all dollars spent directly tie to your church’s mission? If so, you can confidently be open and transparent with your donors about where their dollars go. That transparency will go far in convincing people to give to your church, knowing that they’ll make an impact. By better tracking where donations go, you’ll also be able to add more data about impact to your donation letters and other reports.
6. Prevent Theft with Due Diligence
Unfortunately, theft and embezzlement continue to plague nonprofits around the world, and it is particularly prevalent in today’s churches. That’s why you should be taking extra steps to detect and prevent fraudulent money handling. This applies regardless of the size or familiarity of your team.
Even if they’d never mismanage money, These practices are essential. Having them in place to safeguard your donations will give your donors (and everyone else) more peace of mind.
7. Encourage Recurring Gifts to Improve Church Financing
Ultimately, predictable income makes for the easiest financial plan, but that can be difficult to achieve. The best solution is to try and promote recurring gifts amongst your congregation. This will help you make your income more predictable and manageable.
DonorWERX can help you do just that by giving your church a means of accepting donations in new ways, with recurring gifts, online giving, and more. Click here to learn more about how our software and coaching can help your church manage money better.