Church Budgeting

As the fourth quarter of the year approaches, churches that follow the calendar year as their fiscal year should begin the 2022 budgeting process. 

Especially for churches with large and complex budgets, the process should begin early in the fourth quarter.  The church’s bookkeeper can help take the current year-to-date income and expense data and form baseline month-to-month projections for the upcoming budget year. Then, those with leadership oversight of the church can contribute specific input. If any significant one-time donations are expected, those can be added to the appropriate month in the income projections. If specific one-time expenses are anticipated in the upcoming year, those can also be added to the appropriate month in the expense projections. For larger churches with more complex budgets, time should be allowed for department heads to indicate anticipated expenses for their specific area, and request budgetary expense allocations for their specific ministry areas. Then, that feedback can be weighed by church leadership before finalizing the budget.

In any year, leaders must make educated projections as to anticipated adjustments to income. If the church has plans for growth and has reasonable confidence in such growth, then it may decide to budget for a specific percentage of increase in income. Of course, the converse is also true for a church in decline that has a reasonable expectation that income will diminish. A good budget will make projections based on the most likely scenario when it comes to income.

Once income projections have been made, then leaders can circle back and adjust expense budgets as necessary to make ends meet. If expense categories must be lowered slightly to match income realities, then often ministry programming expenses can be adjusted to balance the budget. However, if income realities required significant expense reductions, this often requires adjustment to staff payroll since salaries frequently make up a significant percentage of the church budget. While facility expenses also consume a large percentage of the budget, those expenses are often fixed over a long term, and therefore are more difficult to adjust from year to year.

When making budget projections, a best practice is to capture anticipated budgetary ebbs and flows that come throughout the year. For example, many churches have solid income during the school year, then see a dip in attendance and offerings during the summer, then a recovery in the fall, followed by peak giving at year’s end. Likewise, expenses may fluctuate greatly from month to month based on the timing of major obligations. A budget based on projections for each month of the year can best capture these fluctuations and help the church plan for its cash management.

The budgeting process is more tricky, and therefore more important, during the current season with issues related to the pandemic. Disruptions may impact both income and expenses at any moment. Churches should consider developing an alternative budget which accounts for these realities, and which can be implemented if disruptions arise during the budget year.

Contact Clergy Financial Resources to help you with the next steps.

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Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.

This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.

For more information or if you need additional assistance, please use the contact information below.

Clergy Financial Resources
11214 86th Avenue N.
Maple Grove, MN 55369

Tel: (888) 421-0101 
Fax: (888) 876-5101
Email: clientservices@clergyfinancial.com