Creating an effective annual ministry budget/ministry spending plan has shifted from a simple finance committee activity to a multi-faceted process, involving ongoing staff, leadership, and financial leader collaboration. In our rapidly evolving ministry environment, managing the budgeting process has become a year-round activity. If your church or faith-based nonprofit has yet to make this shift, it’s time to reconsider your approach.
If you have not shifted to a fiscal year that matches your ministry planning year (usually beginning in July, August, or September), you’re in the final stretch of 2021 facing a full Advent calendar, promoting a strong year-end giving effort, and managing year-end expenses. Focusing on budgeting can be difficult. Add to all of these challenges the uncertainty of the pandemic and the economy, and it’s hard to have confidence that what you plan today is going to be accurate or even relevant by the second quarter of 2022.
These challenges are precisely why your approach to budgeting has to look different that it did just a few years ago. Joe Park, CEO of Horizons Stewardship, and Stan Reiff, Partner and Practice Group Lead, CapinCrouse recently hosted an online discussion about how to best approach developing a ministry budget for the coming year. You can access the on-demand video and read the summary below.
A Few Key Observations
We are far enough into the disruption of the pandemic to recognize that any idea of “going back to the way it was” is unlikely. That means the next normal has taken root and will look remarkably different than it has in the past. While it can seem overwhelming, it doesn’t have to be.
Annual budgeting has historically been a perfunctory process. The finance committee gathers, looks at historical trends, accounts for incremental changes, and adjusts the budget to ensure it is balanced. This budgeting process, while helpful in years past, doesn’t adequately address the increased volatility caused by continuous change. Perhaps the most difficult part about all of this is that what used to be constants are now variables—and almost everything is a variable.
The shift of fewer donors giving more is likely to continue. Just because you’ve grown the number of participants in your ministry through your online and community efforts during the pandemic doesn’t mean you’ve created new and growing donors. You’ll likely to experience what almost every other church is experiencing: more and more dollars are coming from a smaller and smaller number of donors, who are often advanced in age.
Measuring effectiveness- the return on human and financial investments, becomes infinitely more important when you are making prioritization decisions. Measuring effectiveness is the only way you can manage in rapid change and ensure you are creating the greatest impact possible. Being able to tell your impact stories in measurable ways is critical to stem the flow of giving from your best donors to other nonprofits.
Four Steps to Develop Your Annual Budget
Step One: Build a Bridge to Your Financial Leaders
Your financial leaders are financial leaders for a reason. And they want to be more than just your ATM when times get tough. Invite them into the conversion. They likely will have incredibly helpful insights as they are experiencing the same challenges in their business, too.
Far too often, financial leaders are treated as if their job is just to give. But giving is an outward response to an inward commitment. When you invite your financial leaders into your generosity and ministry planning, you gain their wisdom, increase their buy-in, and very likely the level of their financial investment as well.
Step Two: Turn Your 12-Month Budget Into a 90-Day Budget
This doesn’t mean you don’t create a 12-month ministry spending plan/budget. But it does mean that you agree to evaluate your budgeted expenses and contributions every 90 days. This affords you the opportunity to pivot faster and to react quickly to circumstances you couldn’t have foreseen.
Setting a one-year budget and then just following it blindly, without adjustment, until the next budgeting cycle is just too risky in this environment. In fact, the 90-day budget adjustments will help staff, ministry leaders, and financial leadership build a greater working relationship as they recognize how their combined efforts are stronger when they work together.
With quarterly reviews of both income and expenses, support for a more intentional effort around annual generosity planning grows as well.
Step Three: Rethink Your Debt Commitments
You may not have complete control over giving, but managing expenses are absolutely within your control. One of the largest expenses for many ministries is debt service. If you can accelerate your debt pay off or even restructure your debt to more favorable terms, you can reduce fixed expenses and free up more money for ministry.
This is often an underutilized and underappreciated strategy for church and ministry leaders. Many think their congregation or constituents won’t get behind a debt elimination campaign, but as households are reducing their debt burden, they are also strongly supporting efforts by their churches to do the same. Churches can very quickly free up ministry budget dollars that were previously being lost to principal reductions.
Step Four: Communicate Impact and Life Change
One of the five disciplines of financially thriving ministries is to tell your ministry story. Your donors want to know what’s most important to you and how you’re allocating time, money, and people to deliver a specific outcome. This invites your donors to experience being a part of the solution, rather than feeling they are simply keeping the lights on.
Your financial leaders are often very skilled at understanding the meaning behind financial numbers. But your pastoral leadership is often very skilled at explaining vision, mission, and opportunity. When you combine those two conversations together, you provide confidence, clarity, and context for your donors. And, as a result, you’ll see their enthusiasm and generosity grow.
Choose to Take Your Discipleship to the Next Level
Your budgeting and ministry planning is a way to build alignment, consensus, and focus. Making this a year-round focus will improve your ministry impact and increase ministry leader and donor confidence and engagement.
Horizons has worked with thousands of churches and ministries to raise billions of dollars for nearly three decades. We’ve learned that adaptation and agility are possible, but you need a plan. It doesn’t just happen. That’s why we created Next Level Generosity, an approach to building a culture of generosity in your church that will elevate and accelerate your ability to make more disciples and fund more ministry.
If you’re looking for help with your generosity development and ministry planning, you can connect with an experienced fundraiser and trained guide who can help you develop a way forward that is strategic, measurable, and outcome-based.