ECCU Blog

The way a ministry builds its budget has significant impact on how successfully the ministry lives out its mission. For larger ministries, the need for budgets to be built strategically and aligned missionally is crucial. The question is how. How do you build this kind of budget? 

I know this question is on ministry leaders’ minds because so many of them signed up for ECCU’s recent Advanced Budgeting webinar. So I’m looking forward to presenting an educational session on advanced budgeting at the upcoming Christian Leadership Alliance (CLA) 2013 National Conference in Anaheim, California. And I’m thrilled to be co-presenting with Caryn Ryan, whose credentials couldn’t be more impressive.

Caryn is the managing member and founder of Missionwell LLC, a full-service accounting, finance, and virtual office solution that exclusively serves nonprofits. She has extensive experience in major industry settings like Amoco Corporation and nonprofit settings like World Vision International, where she served as CFO.

To set the stage for our session at CLA, I asked Caryn a few questions about budget building.

Mark: Caryn, what are some strategic steps budget planners of large organizations should take to ensure that the process heads in the right direction?

Caryn: The most successful budgets have senior executives driving them. If the budget is a finance/accounting department effort only, it’s going to be less successful. Beyond alignment with the strategic plan, it’s helpful to have clear goals or business imperatives for the budget for the coming year. Examples might be absorbing new activity without affecting fixed costs, taking a deeper dive into the effectiveness of specific programs, freeing up funds to establish an operating reserve account of $XX without disrupting operations, or even starting a critical program when funding is at 60%.

Mark: Many ministries experience tension when it comes to aligning money and mission. What are some guiding principles or best practices to assure that a ministry’s budget reflects priorities?

Caryn: Aligning money with mission sounds easy, but is surprisingly hard to do! Start by listing out your strategic objectives/priorities, then translate them into strategic goals. Next, lay out multi-year strategies to achieve the goals. This is where the budget starts to come in. Each strategy (program or activity) requires direct resources, whether people and/or program dollars. Identify the direct resource (people and/or dollars) for each strategy at the level required in the budget year to achieve the longer-term goal.

Now the fun begins! Start a conversation to help answer these and other questions:

• Are resources available to fund all strategies?
• Do goals need to be adjusted?
• Are fixed costs and overhead affordable?
• Do programs or activities seem to move the organization towards its goals quickly enough?

The heart of the budget is to move the organization toward its goals efficiently.

Mark: What are some keys to assuring that a budget serves the organization well after it is approved?

Caryn: The simplest way to keep a budget alive is to consistently report actual results compared to the budget. Color coding variances can highlight the ones that are significant and require attention. Focus staff and teams on those variances. Also, keep in mind a budget doesn’t have to be completely financial. For instance, you can budget the non-financial elements of your balanced scorecard and report against those variances, too.

Budgets die after approval if they are not used as accountability tools!

If the organization doesn’t have a system of accountability, that should start with the board. The board negotiates with the president/executive director on what elements he or she will be held accountable. This may mean employing a flexible budget/agreement on what is and is not controllable in the year, or a range of acceptable outcomes around key line items. Pay increases, bonuses, and other rewards should be linked to achieving budget goals.

Another part of the accountability spectrum is staff—paid or unpaid, outsourced or direct employees. Once strategies have been funded in the budget, then people can be linked to the strategies. Typically, this is expressed as a percentage of a person’s time against an annual performance goal. The budget stays alive for the individual through their team meetings and meetings with supervisors as they compare actual performance to objectives aligned with the budget.

I just read a blog post by T.J. Addington that made me want to give him an award. You can tell by the title that his point was simple: Does your ministry budget reflect your ministry priorities? But like many simple points, this one isn’t easy to pull off.

T.J. makes all kinds of other important points, like this one:

Budgeting should not start with the past but with what you intend to accomplish in the future. The starting point is where we want to go, not where we have been. Budgets should help us drive our ministry agendas.

These words are written from hard-earned experience. As a senior vice president with the EFCA, he leads ReachGlobal, the EFCA’s international mission, which has a mammoth 10-year vision: To touch 100 million people with the gospel. Without focusing ministry resources, that vision would be just a pipe dream.

Your budget is a primary tool for aligning your ministry’s money with its mission. If it doesn’t reflect your priorities, then, well, they’re not really priorities. This point is so important that we spent nearly half of our advanced budgeting webinar talking about how to do it. And it was the whole point of David Lee’s session at this year’s Financial Forum for Ministries.

I like the way T.J. thinks. If you do too, you may want to swing by his blog Leading from the Sandbox on occasion.

According to GuideStar’s recent survey of nonprofits, for the first 9 months of 2012, 34% of nonprofits reported an increase in donations while 37% reported a decline. These mixed results are attributed to the lasting effects of the Great Recession and slow economic recovery.

The major cause cited by 77% for the decline in donations was smaller gifts from individuals when compared to previous years. The other major cause was fewer individual gifts.

In addition, 30% expected year-end giving to be higher than last year while 29% expected giving to be lower. 

Surprisingly, 42% of nonprofits were planning on increasing their 2013 operating budget when compared to 2012.  32% will keep budgets the same and 24% will reduce their budget. 

How are you and your ministry viewing 2013?  Are you planning for an increase in donations?  Planning for things to be about the same or lower?  With so much in economic uncertainty right now, cautious and prudent planning for 2013 seems appropriate. 

Grateful we can trust God for the just the right amount of resources we need.

As the final quarter of the fiscal year for many ministries rolls around, a recent post by church planter/professor/blogger Tim Spivey on his New Vintage Leadership blog is well worth reading.

Two Things You Must Have Before Asking People to Give offers a simple formula that Spivey learned early in his ministry. He says this formula “keeps me from asking for money to meet budget. Of course we have to meet it, but the budget is an inanimate object. Pull it apart. Personify it. Show them how life change happens through the budget. If you can’t, your budget needs to be overhauled.”

On the heels of two recent ECCU budgeting webinars (now available as free recordings), I resonate with Spivey’s words. He’s advocating that we align money with mission and monitor to be sure our ministries stay on mission.

Check out Spivey’s blog post to learn his formula, then come back here and leave a comment letting me know what you think.

During a recent ECCU budgeting webinar for ministries with up to $2 million in revenues, we asked attendees which accounting package they used. Two thirds said QuickBooks.                                                                                            

It has been my experience that many QuickBooks users don’t fully utilize its functionality. If this is true of you, here are several tips that may prove helpful as you go through the budgeting process.

First, make sure you have a good chart of accounts. Keep it simple and relevant. Use categories that can be applied across ministry and operational areas. Also, create a structure that allows you to condense various line items into a summary category when reporting to your leadership or board. An example of this would be the summary category called “program expense,” which would contain a number of lower-level line items, as shown in the lower left of this screen shot.

Next, identify the distinct ministry and operational areas that will constitute your classes. You will use these classes to structure your budget and prepare budget-to-actual reports each month. Don’t go overboard here, but create enough classes so you can produce meaningful reports for each area, like this:

Finally, create your budget using the set up budgets feature. Now you can begin using your chart of accounts and class structure to document the budget. After you’ve completed all the ministry areas, you can run an organizational report that presents the budget based on your chart of accounts and areas (classes) with totals for the entire ministry. You can also run budget-to-actual reports for specific ministries.

If you’d like more budgeting guidance, check out our Budgeting 101  webinar recording and additional resources, including additional tips for QuickBooks users.