Church Finances 101: Tips for Effective Budgeting and Record-keeping

A church may be a non-profit, faith-based organization, but it needs to run like a business in order to operate properly. As a church leader, you oversee and manage funds in ways that align with the church’s mission. Your revenue is largely supported by donations, and your congregation trusts you to create an effective budget with their contributions. 

But whether your church relies solely on donations or you receive revenue from other sources such as facility rentals, keeping track of it all can be daunting. And since budgeting manually is time-consuming, it can take you away from other day-to-day obligations serving your parishioners. 

Need some strategies for simplifying these essential tasks? From goal-setting to using church accounting software, let’s explore some budgeting and recordkeeping tips that can help support your organization’s financial viability.  

Review your past records

One of the best ways to create your next year’s budget is to look at the past. Review financial documents from previous years to assess:

• Where your money is going every month. Look at how much you spend on utilities, travel, personnel, etc. Break down expenses by committee, program, or fund, such as pastoral or worship groups. Consider your fixed costs, such as your mortgage, and variable expenses, like a one-time ministry trip.  
• Donations and revenue. Calculate donations and revenue received and note any seasonal fluctuations. Include offerings, tithes, fundraiser income, book sales, church facility rentals, or other sources.
• Amount of reserves. Do you have money to cover emergencies?
• Repayment history. Are you paying your bills on time?

These historical views can help you forecast donations and plan and project for next year. If you’re using church accounting software, you’ll find this task pretty simple since all your expenses are tracked, and you can pull up reports anytime. Don’t have this tool? Go through your files carefully to gather and examine the documents and data you need.

Project future income 

Informed by your past experiences, forecast your income and expenses for the following year. Know that donations typically drop off during the summer months? You’ll have the data you need to plan accordingly. 

Establish your vision

Think about your goals for the future. Your vision should be the foundation for your budget. For example, do you want to grow your worship attendance, increase outreach events, or expand your summer youth camp? Consider how you could realistically achieve these goals from a financial perspective. 

Draft your budget

After examining your past year’s income, expenses, and future goals, it’s time to create your budget. Break down how much money you will allocate for each line item within that time frame and your forecasted income. If you find your expenses are more than your anticipated revenue, go back and review where you could cut. 

What should be in your church budget?

Building a budget is a strategic process, and it’s necessary for any organization or business. Your church budget should include all expenses and projected revenue, such as:

• Income. Include all revenue collected from tithes and offerings, fundraisers, rentals, etc.
• Operating expenses. Mortgage or rent payments, insurance, office equipment, and supplies. 
• Personnel. Any salaried staff positions and the cost of any benefits, such as health insurance, for each. 
• Programs. Direct ministry programs, including religious instruction programs for children, counseling, and youth groups. 
• Outreach. Social and community events, evangelism, and mission trips.
• Facilities. Maintenance costs and utilities.
• Future plans. Costs for any expansion, upgrades, or other upcoming projects. It’s okay to be aspirational—creating a line item for your dreams can help you plan.  
• Cash reserves. A church should have three to six months of reserves to cover unexpected expenses. If the AC breaks down in the summer, you’ll have funds on hand to fix or replace the equipment promptly. 

Use a budgeting tool

Once you’ve drafted your budget, you’ll need to manage it. While you could do this every month manually, an accounting software program will simplify and automate many processes so you can easily track your donations, expenses, and more. Consider how you could leverage technology to do the following:

Manage cash flow. Accounting software can give you insight into every transaction. Gain insights into your money coming in and going out so you can forecast wisely. You’ll see exactly where your funds are coming from. 

And speaking of funds, some accounting software systems allow you to accept credit, debit, and ACH donations online and in person. You can create custom tags for specific contributions and funds so you can quickly pull reports later. The software may even sync with apps you already use to communicate with congregants. 

Track receipts and expenses. Eliminate the need to hold onto paper receipts with software that features a receipt and expense tracker. Whether your clergy is traveling and accruing reimbursable church-related expenses or you purchased new office equipment, a receipt and expense tracker keeps everything organized, secure, and accessible. Simply snap a picture of your receipt and link them to your expenses. Spending will appear on your intuitive, user-friendly reporting dashboard.

Create and share reports and records. Keep church board members and other stakeholders in the loop by sharing key statements. Planning a fundraiser? Generate a custom report to present to your congregants to build excitement and encourage buy-in on a new project. Give department heads financial reports on budget vs. actuals so they know if they’re spending and allocating funds properly. 

And then there are church recordkeeping requirements. As a religious organization, your church is tax-exempt, but you may still be required to keep the following:

• Payroll records
• Banking records
• Invoices
• Receipts
• Revenue records

Church accounting software can help you store and organize those data and documents and more.

Review budget and adjust as needed

While a budget is a guideline, it’s fluid as it needs to reflect your church’s priorities as they change. It’s a good idea to review your financial position on a monthly basis. Did you have to tap into your reserves to repair the church van or fix the roof from storm damage? On the flip side, perhaps a donor was extra generous, or you received some government funding. Your budget needs to be flexible and relevant to your current situation. 

Give your house of worship time-saving tools that can enhance efficiency, streamline tasks, keep you organized, and, ultimately, even save you money. Whether you use an accountant or an in-house team member, accurate budgeting and recordkeeping can help you meet the needs of your church so you can better serve your congregants.