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.

If I’m looking for answers to the question above, I’m going one place first…for two reasons. That place is the ECFA (Evangelical Council for Financial Accountability).

One reason is because ECFA President Dan Busby and Vice President John Van Drunen are experts on matters like this. The other reason is because I have the privilege of addressing this topic with Dan and John in an upcoming ECFA webinar.

To lay some groundwork for our webinar discussion, I emailed these two experts a couple questions related to the topic. Here’s how they responded.

Mark: What are some “worst practices” to avoid when handling church finances?

Dan and John: If you are a church treasurer, avoid:

• Counting the offerings yourself. Try to have two other people count all offerings.
• Paying or reimbursing expenses without adequate substantiation.
• Putting off reconciling the bank account. Reconcile monthly.
• Signing a blank check and giving it to someone to make a purchase for the church.
• Vesting all financial management authority in one person (if possible). This can place a volunteer in a compromising position if allegations are made, regardless of the trustworthiness of that volunteer.

Mark: If there’s a CPA or tax expert in the congregation, is it wise to tap into their expertise on these issues?

Dan and John: A tax professional will often provide needed expertise as the church treasurer or by serving on a finance committee. So yes, having a volunteer with specialized expertise is often a real bonus for a church. It is wise to have this person work with others in the congregation who can step into the role in case he or she needs to relocate suddenly. This can also prevent burning someone out in their volunteer service.

If you’d like to join Dan, John, and me for this webinar, it’s titled 5 Basic Financial Issues for the Small Church Treasurer.  We’ll be presenting from 10:00 to 11:00 a.m. (PT) on Thursday, April 4, 2013.

For more information and to register, visit www.eccu.org/ecfa-webinar.

It can be challenging to stay abreast of legal and legislative changes affecting your ministry. What, for example, are you to make of recent legislation passed by Congress to avoid the so-called fiscal cliff?

To find out, I emailed a few questions to Dave Moja, partner and national director of not-for-profit services with CapinCrouse LLP. Here’s how he responded.

MBG: What’s the most important thing ministry leaders should know about the legislation Congress passed to avoid the fiscal cliff?

Dave: One thing is the extension of the deduction from an IRA rollover. Taxpayers who are 70½ years of age can roll up to $100,000 from their IRA without having to take it as income. This expired at the end of 2011 but has now been extended through 2013.

MBG: How about healthcare legislation? If a ministry isn’t familiar with its implications, are there a couple first steps they need to take in response to it?

Dave: There are several items here. First, ministries need to make sure they are reporting health benefits to their employees on Form W-2. Next is the new 0.9% Medicare withholding on higher income employees. Ministries should make sure they are up to date on these rules for their executives.

MBG: Is there an update that you think might catch most ministries off guard?

Dave: Ministries should be aware of the new rules that take effect in 2014 with regard to potential penalties.

One reason I asked Dave these questions is because he’s presenting an upcoming Christian Leadership Alliance (CLA) webinar titled Need-to-Know Tax and Legal Trends and Updates. When I asked Dave for some important takeaways those who attend this webinar can expect, here’s what he said:

“We will summarize what to expect in 2013. Also, we expect several IRS clarifications this year. These include changes to the charitable contribution deduction, unrelated business income stipulations, and changes to Form 1023, the exempt application process.”

This webinar will be presented on Thursday, March 28, 2013, from 9:00 to 10:00 a.m. (PT). For more information or to register, visit www.eccu.org/cla-webinar.

When I visited the Rock Church in San Diego a few years ago, the first person I met was their receptionist. After she greeted me, I asked her to tell me what they were all about. “We’re a do something church,” she quickly replied. Are they ever! A year ago they invested the equivalent of 100 full-time people (235,000 volunteer hours) serving their city.

How do they do it? Next month, Senior Pastor Miles McPherson and his team will tell their story at the Do Something Church Summit on Friday, March 8. To see and hear more about the Summit, watch this video trailer:

To get more of an idea of what the Rock Church has learned by getting serious about serving, I emailed a few questions to Miles. Here’s what he said.

MBG: San Diego has experienced the love of Jesus through the Rock Church. How have people in the city responded to that love?

Miles: The volunteer work of the people of the Rock has fostered many relationships and partnerships with community-based organizations. Once they see that we are there to serve, ongoing partnerships are fostered that result in continued open doors for service.

MBG: What are some hurdles pastors typically face when presenting their congregations with the vision of becoming a Do Something Church?

Miles: Pastors will feel burdened to organize all of the ministries with their staff, feeling like it can get messy using volunteers to lead the efforts, but this is the beauty of the model. There are so many high capacity volunteers waiting for the chance to get in the game. If their efforts were unleashed, the amount of ministry they could accomplish would grow exponentially.

MBG: What’s one significant way that being a Do Something Church has changed the Rock Church?

Miles: It has created a culture of service among our congregation. People are now trained to look for and address practical problems facing the people of our community instead of just walking by and praying for them.

MBG: Besides a customized plan for their churches, what are a couple major takeaways people can expect by attending the Summit?

Miles: They can expect to take away a whole new philosophy on outreach. The Summit will provide them with a complete plan of action for how to launch dozens of volunteer-led ministries in their church. They’ll be equipped to plan church-wide community service events in partnership with community leaders—including their city’s mayor. And they’ll take away new resources and tips to expand their reach through technology. This is going to be an event you don’t want to miss!

To learn more or register for the Summit, visit dosomethingchurch.org/summit. Cost is $99 per person, which includes a Thursday-evening dinner reception.

Have you discovered that serving your community opens doors for the gospel? Please comment and let us know how.

Before the economic downturn, many churches thought that growing attendance translated into greater giving. And often, it did. So lenders were inclined to look at attendance growth when evaluating how much new debt a church could handle.

But what has the recession taught us? Is this a valid criterion for determining the loan size a church can handle today? To find out, I asked Jeremy Moore, one of ECCU’s regional directors, a couple questions.

First question: If a ministry is growing rapidly, it seems reasonable to expect a lender to consider their potential for greater giving when determining the amount of money that ministry qualifies to borrow. Is that how commercial lenders see it? Why or why not?

Jeremy: One thing we learned in the downturn was that relying on continued growth in attendance and giving is dangerous. Lots of ministries that struggled to meet obligations ended up there because of their expectation of continued growth. While it’s certainly good to hope and plan for growth, one must also be careful to build in margin and have contingency plans in place in the event that growth doesn’t materialize. In today’s market, lenders (including ECCU) rely almost exclusively on historical results when determining a ministry’s ability to service future debt.

Second question: Cash flow can become a problem for any ministry. Can it be a problem when a ministry is applying for a loan? Why?

Jeremy: Cash flow is important for all kinds of reasons. One is because a ministry that manages cash well has the ability to react to unexpected opportunities and challenges without unnecessarily jeopardizing their ongoing ministry. From a loan perspective, lenders are typically looking for borrowers who have built margin into their cash flow. This is why having the ability to comfortably make mortgage payments should be budgeted before the loan application process begins.                                

I asked Jeremy these questions because he and two of his fellow regional directors will present a webinar on February 21 titled How to Look Like a Healthy Borrower. All three of these men have a wealth of experience gained by working with ministries during the recession and helping them return to financial health.

To wrap up, I asked Jeremy what people can expect to learn by attending this webinar. He simply said, “They’ll learn how to look and act like a borrower before applying for a loan.”

If you’d like more information about this webinar, you’ll find it here.