When it comes to church finances, it’s important to understand where the money is coming from, and where it’s going. As a church, you are stewards of your congregation’s giving and other donations.
Church members deserve to know where the money they tithe is going. This is where transparency comes in. If you have effective church financial management and good stewardship, then there’s nothing to hide.
Church financial management is a multitude of things from long-term planning to accounting to legal compliance. I know, it can be a lot! Thankfully, there are some amazing church management software programs that can help you. Let’s take a deep dive into the world of church financial planning.
Table of contents
Estimated reading time: 13 minutes
Church Financial Management
In a study from Lake Institute, they found that 95% of congregations track their money. 14% track money with pen and paper, 18% use Excel, and 51% use accounting software. Just as church members track their own money, so should a church. A church’s financial resources can range to many different departments. After all, money is needed often and for a lot of different reasons.
Stewardship
Stewardship is the foundational principle, emphasizing the prudent and diligent management of financial resources entrusted to the church. It entails realizing that these assets are God’s and ought to be used prudently to achieve the goals and missions of the church.
Transparency
Transparency requires openness and honesty in all financial dealings. It entails giving the congregation easy-to-access financial information to inform them about how church finances are spent.
Accountability
Accountability is vital for preserving confidence within the church. Financial decisions and actions by church leaders and financial staff members must be held accountable, and regular audits of financial operations are necessary to guarantee accuracy.
Budgeting
Budgeting is developing a thorough plan for how the church allocates its funds. A well-organized budget ensures that spending aligns with the church’s aims and assists in allocating cash to various ministries and activities.
Financial Reporting
Transparency depends on accurate and timely financial reporting. The congregation must receive regular financial statements, such as balance sheets and income statements, to keep them updated on the church’s financial situation.
Legal Compliance
Churches must follow all relevant financial and tax laws. Maintaining compliance guarantees that the church stays within legal bounds and keeps its tax-exempt status.
Risk Management
Risk management is a crucial aspect of effective financial management as it safeguards the church’s financial stability by recognizing and controlling financial risks, including debt, possible obligations, and market volatility.
Generosity & Giving
Promoting generosity within the church is essential. Encouraging tithes and happy giving according to biblical principles help the church maintain a steady revenue stream.
Financial Education
Church leaders and members make better financial decisions and manage their finances by receiving financial education and training, which benefits the church.
Long-Term Planning
Planning for a church’s finances entails goal-setting, creating endowments or reserves, and ensuring the organization remains solvent over time.
Church Management Software
Church management software is a solution designed to streamline and simplify the administrative tasks and operations for churches. It serves as a centralized platform that encompasses various tools and functionalities, including church membership software, event registration and management, volunteer management, communication tools, online giving and donor management, and more. And most importantly in this case, they will help with church finance management.
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Income Sources
Churches can manage a sustainable budget through the principles listed below. A church’s money source is very important to maintain and understand how it’s being managed.
Income Assessment
Evaluate the church’s revenue streams, which include contributions, grants, tithes, offerings, and rental income. Planning the church’s budget requires an understanding of its financial resources.
Prioritize Missions and Ministries
List the main missions and ministries of the church in order of importance. Set aside a sizable amount of the budget to fund these vital operations.
Budget Group
Form a group comprising people with financial knowledge and religious leaders as members. The group offers insightful guidance and supervision throughout the budgetary process.
Historical Data
Examine past financial data to spot patterns and trends in earnings and outlays. Making realistic budget estimates is aided by historical data.
Zero-Based Budgeting
Consider utilizing the zero-budget method, which necessitates yearly justification of every cost. The approach makes sure that spending reflects priorities and needs as of right now.
Emergency Fund
Set aside money in the budget to establish and keep an emergency fund. Financial stability is ensured by having the reserve fund available for unforeseen costs or bad times.
Expense Categories
Divide costs into stable categories, such as rent or salary, and variables, such as supplies, utilities, etc. It helps keep an eye on and rein in expenditure.
Budget Monitoring
Monitor the spending schedule to ensure it tracks the finances. Take appropriate corrective action by comparing actual numbers to the budget to find any variances.
Financial Education
Discuss with the congregation the value of prudent money management and charitable giving. Urge members to make regular, significant contributions.
Debt Management
Give priority to paying off high-interest loans and create a clear plan for debt reduction if the church is in debt.
Grants and Fundraisers
Look into grant options and fundraisers that fit the goal and vision of the church. These extra revenue streams help to balance the budget.
Long-Term Planning
Create a long-term financial strategy incorporating savings, investments, and endowment funds to ensure the church’s financial stability.
Review and Modify
Evaluate the budget regularly to determine its efficacy and make any required modifications. Adjust to shifting conditions and exercise flexibility.
Transparency
Keep everything transparent by routinely providing the congregation with financial data. Transparency promotes ethical giving and fosters a culture of trust.
Seek Professional Guidance
Consult financial advisors or consultants with specialized knowledge in church finances to obtain expert guidance and recommendations.
Managing Church Finances
The objective of church financial management is to efficiently and responsibly steward the financial resources of any religious organization, primarily focusing on churches, to support its mission and ministries. It involves organizing, assigning, budgeting, and supervising the use of church funds in a way that guarantees accountability, transparency, and sustainability.
For your budget, there are three benchmarks your church need needs to measure. Knowing how your church’s budget compares with other churches will help you to understand how efficient your church is operating.
According to AG Financial Solutions, here are the three crucial benchmarks for church budgets:
- Personnel: 33-45%
- Building/Facilities: 25-30%
- Office Expenses: <10%
Lake Institute found that Where finances are spent, on average—49% on personnel, 23% on facilities, 11% on missions, 10% on programs, 6% on dues. Evangelicals, on average, spend more on personnel (51% of budget) and less on facilities (21%), compared with African American Protestant churches that spend 23% on personnel and 25% on facilities.
The finances of the church can be governed by a combination of church leaders, such as pastors or clergy, and dedicated financial committees or boards responsible for overseeing financial matters and ensuring responsible stewardship of resources. These people and organizations ensure that the church’s finances are handled sensibly, openly, and according to its goals and principles. The integrity and financial health of the church and its activities depend on effective financial governance.
Giving (Tithing)
The best practices for handling Church Donations and Tithes are listed below. In study conducted by the Lake Institute they found that 28% of overall U.S. giving were in small donations (under $100k per year). 33% of giving came from medium-sized donations ($100k-$245k annually). Only 9% of church revenue came from large donations ($1M+).
Giving can also be a direct sign of a church’s financial health.
Designated Giving Policy
Create a clear policy for designated giving that specifies how gifts and tithes are directed to certain objectives or ministries while being flexible to meet the church’s needs.
Transparency
Maintain transparency by giving contributors frequent updates on how their contributions are being utilized and by making available financial reports that unambiguously detail the revenue and outlays associated with contributions.
Segregated Bank Accounts
Maintain segregated bank accounts to prevent the commingling of contributions with other church finances. Keep separate bank accounts for donations and general church funds.
Provide Multiple Giving Options
Allow members to give in various ways, such as in-person collections, online giving platforms, and mobile apps, to accommodate varying tastes and promote regular contributions.
Designated Funds
Donors and members must be made fully aware of the rules and limitations of any designated funds that the church establishes for particular purposes.
Maintaining Accurate Record
Establish a reliable method to precisely document and monitor all tithes and donations, including donor particulars, sums, and dates.
Safe Treatment
Establish the necessary precautions to prevent theft or improper treatment of donations and ensure they are handled safely from the moment they are received.
Thank-You Notes
Acknowledge donors’ donations and convey gratitude for their support by sending them individual thank-you notes or receipts.
Donor Privacy
Maintain donors’ right to privacy by protecting their financial and personal data and following data protection laws.
Financial Controls
Put internal oversight and controls in place to guard against misusing or mismanaging donations.
Regular Audits
Conduct regular financial audits, either internally or through independent auditors, to ensure the accuracy and integrity of donation-related financial records.
Budget Allocation
Set aside a certain amount of the church’s funds to pay for overhead and make sure contributions are used effectively to fund the ministries and mission of the organization.
Educate Contributors
Inform contributors about the value of regular giving, the effects of their donations, and the tithing and generous giving laws found in the Bible.
Online Giving Security
Guard donor data, including church donations and financial transactions, against cyberattacks by securing online giving platforms.
Thanksgiving Offerings
Encourage special offerings during Thanksgiving or other noteworthy events to express gratitude and allow members to give more than their regular Church Tithing.
Do Churches have an Accountant?
Accountants play a crucial role in managing the church’s financial affairs. These people are frequently in charge of keeping correct financial records, managing financial planning and budgeting, ensuring tax laws are followed, and submitting financial reports to the congregation and church leadership.
The recording and classification of financial transactions, such as donations, outlays, and other financial operations, is greatly aided by church accountants! They support the maintenance of accurate and well-organized financial records for the church, which is necessary for accountability and transparency.
Church accountants frequently collaborate closely with financial committees or boards inside the church, offering financial knowledge and direction to support the formulation of budgets and resource allocation choices. They will work with auditors during financial audits to ensure the church’s financial accounts are correct and follow accounting standards.
Transparency and Accountability
It’s crucial for your church to have a variety of safeguards in place to protect the integrity of your church and leadership. Here are a few things for you to consider:
- Require dual signatures
- Limit access to bank information
- Reconcile your ledger
- Encourage volunteer rotation
- Coordinate an external audit
For additional financial security, it’s highly recommend to remove your church’s senior leadership from being directly involved with the church’s finances. This idea may not be possible for your church. But if you can make this move, it will provide you with an added level of financial integrity, and this arrangement will also give your members peace of mind knowing that your pastor and staff are not involved in their life based on whether or not they donate to your church.
In your church, there are two groups of people you need to keep in mind when sharing financial information: your congregation and your leadership!
Regarding your congregation, it’s hard to say how much is too much or too little to share. For some churches, they have a history of sharing weekly updates, whereas other churches may share a financial update once per month, quarter, or year. So, how often you choose to update your church is up to you. Just aim to be consistent with your frequency.
Legal Considerations for Church Finances
The legal considerations for church finances are maintaining tax-exempt status, adhering to tax laws, ensuring financial transparency, and properly acknowledging charitable donations to comply with any legal regulations and avoid potential legal issues. Acknowledging these legal obligations is essential to avoiding legal problems, preserving the church’s financial stability, and preserving its standing as an accountable resource steward.
- Churches are required to keep their Internal Revenue Code section 501(c)(3) tax-exempt status.
They are limited by specific rules, such as not participating in excessive political lobbying and ensuring their earnings are mostly allocated to charitable, educational, or religious endeavors. The consequences of breaking these rules are legal repercussions and the loss of tax-exempt status.
- Churches must abide by state and federal tax regulations about withholding and reporting taxes.
This means adhering to payroll tax regulations and appropriately reporting and withholding income taxes for clergy members and staff. There are legal repercussions for breaking tax rules, including fines and penalties.
Long-Term Financial Planning
The preparation and upkeep of church financial statements are essential to financial management. These financial statements are records that give a thorough picture of the church’s operations and financial situation. Key financial statements are usually included, including cash flow, income, and finally balance sheets.
These financial accounts thoroughly analyze the church’s earnings, outlays, assets, liabilities, and overall financial performance throughout the given time frame. Church financial statements are crucial for ensuring financial openness and accountability, assisting leaders and members in evaluating the church’s financial situation, and making well-informed decisions.
In a the National Study of Congregations’ Economic Practices, the Lake Institute found that 50% of churches planted between 1975 and 1999 own their buildings, and the other half have mortgages. Only 11% of churches planted after 2000 own their buildings, and 89% have mortgages.
Stewarding Your Finances Well
As you can see, making sure your church’s finances are in order is very important. Not only is it helpful when an emergency strikes, but it’s a great way to be transparent with your congregation. A well managed church has amazing potential for growth.
Money can be a touchy subject, but luckily there are software programs to help you along every step of the way. Dealing with church finances can be stress free and we hope we’ve helped you!
