• Five steps to a strategic, mission- and vision-minded budget

A budget guides a church in how it will spend its money, but too often it ignores the ministry’s values and the plan to accomplish its mission and vision. It may be that the church doesn’t even know what its core values are and may not have a biblical mission and a vision. Instead, it allocates funds to keep the doors open, meet salaries, pay the light bill, and so forth. That’s just a budget, nothing more. You don’t want that! So how can you develop a strategic budget? The answer is the following five-step process.

Step 1: Review values, mission, vision and strategy
Step 1 assumes that you have been through some type of strategic envisioning process and that your church has identified the core values that drive it, has articulated a mission and a vision that address its direction, and has a strategy in place to accomplish its mission-vision. If you have not taken this first step, now is the time to do so. If at all possible, put off the budgeting process and do the strategic envisioning (planning) first. Then you’ll be able to develop a strategic budget that will provide the financial capital to fuel your future direction and make a difference for Christ in your ministry community.

Step 2: Determine next year’s income
The second step in developing a strategic budget is to project how much money the church or ministry anticipates will come in over the next 12 months. Some refer to this as forecasting. This is done in several ways.
One way to help determine next year’s income is looking at the track record of the organization and what the past giving has been. To accurately project future giving, it is important to pay attention to past trends of increases, decreases, or flat line giving from year to year. History is very important because, unless something significant changes in the ministry, the same pattern will likely continue.

Step 3: Determine the allocation of funds; two approaches
The fundamentals approach allocates funds to four fundamental areas (or allocation pockets): missions, personnel, programming, and facilities. We use the term fundamentals because these four areas are fundamental to most budgeting systems, and the budget has to address these areas in some way for a church to operate.

Missions: We believe that a church that desires biblical, numerical growth along with spiritual health will allocate about 10 percent of its budget for missions.

Personnel: This is the largest allocation of funds in most budgets. We recommend that the church designate about 50 percent of its budget for its personnel.

Programming: We recommend that a church put approximately 20 percent of its funding into this vital area.  Funded here are the ministries like the worship-preaching service, Sunday school or small groups, and also men’s and women’s ministries and age-related ministries.

Facilities: We advise churches to allocate between 20 and 25 percent of funding for their facilities. Primarily this includes a mortgage payment, insurance, and utilities. If you do not have a current building payment, that money can go into a building fund to provide a down payment for a future building.

We’ve found that these are general allocations for a healthy church. Is there room for some variation? The answer is yes. These percentages can shift during certain seasons of ministry. For example, if you have a capital campaign in progress that includes facilities, you may be able to budget less of your general fund for building needs.

There are other approaches besides the fundamentals approach, to the allocation of a church’s funds, but most are modifications to fit a church’s individual situation. However, another approach that we think you should consider is what we refer to as the functions approach. I have encouraged my students at Dallas Seminary to consider this approach, and I’ve come across a few churches that have used it or a modified form of it. This is also the approach Rick Warren endorses (however, he uses the term “purpose” rather than “function”). Here is a brief overview of the functions approach.

As is clear from its name, the functions approach allocates funds to the church’s ministry functions. To implement this approach, a church has to identify its functions, clearly articulate them, and vigorously pursue them. We believe that, according to Acts 2:42-47, there are at least five functions of the church: evangelism, Bible teaching, fellowship, worship, service or ministry. Thus, if a church embraces this allocation approach, it would allocate funds directly to these five functions rather than to the four fundamentals.

With this approach you would list personnel under each function and allocate funds accordingly. The same would hold for the fundamentals of programming and facilities. However, a potential problem is allocating funds to facilities, since facilities would come under each function. Some address this by using a modified approach, allocating funds to the church’s ministry functions but also allocating funds to certain fundamentals, such as facilities. Thus their budget includes both functions and certain fundamentals.

Step 4: Communicate allocations
The fourth step is to communicate to your paid and lay leadership the approximate amount of money they will have to spend for their areas of ministry. This frees leaders up to plan their coming year and submit budget requests that stay within basic allocation parameters. When other legitimate needs arise, the leader can always request more resources as one-time expenditures or ministry-expansion requests.

Step 5: Set up a cash-forward reserve
This is a set amount you would keep with a bank in an interest-bearing savings account, as insurance in case there is a disruption of contributions to the church over one or more Sundays. This might be due to bad weather, natural disaster, or some economic disaster that would affect contributions in a substantial way.  Many churches will keep in a cash-forward reserve the money that would be needed to cover from two weeks to one month of income to ensure liquidity during summer months or during the times of decline in giving.

Excerpted with permission from “Money Matters in Church,” by Aubrey Malphurs and Steve Stroope, (Baker Books, 2007).

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