ECCU Blog

by Mark Jones

I’ve taken some informal polls at ministry financial management events asking “Do you budget income or expenses first?”  Typically, responses are split right down the middle.

While I can’t say one approach is categorically right and the other is wrong, there are some compelling reasons to project your income before budgeting for expenses.

For most ministries, donations are the primary source of revenue. Projecting donations, though, does not mean choosing the number that closes the gap between expenses and other earned income. Begin projecting your donations by first reviewing your mission, objectives, and strategic plans. Are they similar to the past year? Are you making any significant shifts? This important step will ensure that your ministry remains focused on what is most important to you, and that you’re assessing your income accordingly. After you have reviewed—and possibly revised— your mission, objective, and strategic plans, you can begin to determine the willingness of your donors to support those plans.

If your mission and plans are essentially the same, you can then look at historical donation data.  Look at your donors’ profiles, donation amounts, timing, and trends.  Take into consideration the economic environment where your donors live. By analyzing this information, you can now begin to make some projections for next year’s donation revenue.

If your mission and plans have changed, you have more work to do. Yes, look at the historical donation data, but also estimate the additional revenues needed for each of your new or revised programs.  Will your current donors want to support your new programs?  Or will you need to attract new donors?  From this exercise, you will have the basis to know how much income you expect to raise.

When budgeting income, involve your financial and program staff, as well as your leadership and board to make the most realistic assessment possible.  Finally—and this is important—consider a portion of the income to be a surplus that you won’t plan on spending.  This provides an internal funding source for future program expansion, related capital projects, or contingencies.

So, three steps to get you started in your budgeting process:

1.)    Review your mission, objectives and plans

2.)    Budget income

3.)    Plan expenses

What do you think of this process? Is there another way that you’ve chosen to budget for your ministry? Tell us about it!

FacebookTwitterGoogle+Email
Comments are reviewed by an editor before appearing on the page.
See Blog Comment Policy
Trackback

1 comment

  1. Mark,
    Good stuff. Here’s a couple of things I would add to it:
    Before any expenses are budgeted, executive leaders AGREE on the strategic plans for the coming year, and convert them into blocks of net cash income. The reason for getting agreement (not just dictating) is that then the section leaders will “buy in” to the budget. Compliance will be much higher. The block sizes are constrained by the total income, conservatively estimated.

    One of those blocks is the capital expenditures minus capital net sales.

    Only after agreeing on the block size, let the section do its own budget so it comes out to the block. This will be a much more efficient budget than if they are handed blank budget sheets, put down their dreams, then have to wrangle through “cuts”.

    I really agree with the part about leaving a block for “contingency”. There are always surprises. The executive team then decides how to allocate slices of this.

    Not all budgets need to be balanced. When the cash portion of the general fund (inventory excluded) exceeds the safe limit established by the board, then you can spend (donate) that down. If it’s below the required limit, (or negative) then the overall budget has to be a surplus of cash income.

    The “block” approach allowed us to consistently get two results: we had a workable budget on the first iteration, and 7 years out of 8, we came in favorable to budget. In eight years, the maximum time the unrestricted cash net asset was ever below the requirement was 90 days.

    Have a blessed celebration of the birth of Christ,
    John Harmon
    MTW

Leave a comment