The Pastor and the Church Budget

by Kevin Batman I am an accountant.

My interests, my training, my experience, and even my personality have led me to this vocation which has been affirmed by God. I love accounting. But in my view, there is no higher calling than when God places a burden, a calling, on an individuals heart to serve in ministry as a pastor. The challenge is immense. In fact the Wesleyan Discipline lists some 33 duties and powers of a Wesleyan pastor. Eighteen of the duties are administrative, including number sixteen which names the pastor as CEO of the church. Are you overwhelmed yet? I recently read where NBA coach Pat Riley said of his current coaching challenges: I know what to do; I just dont know where to start. How many times have you felt that way? One of my favorite scriptures is James 1:5 where it says: If any of you lacks wisdom, he should ask of God who gives generously to all without finding fault, and it will be given to him. I find great comfort in knowing that in my humanity and limited resources I can turn to the source of all wisdom and knowledge. the purpose are made clearer by the preparation of an annual budget. Its part of the strategic plan. Budgeting can be an opportunity for a local church to reaffirm and focus its vision to reach its world for Christ. Proverbs 29:18 correctly states: Where there is no vision, the people perish. I think the NIV translator must have been a church treasurer at some point, because it reads: Where there is no revelation, the people cast off restraint. Regardless of size, the local church needs a budget.

What is a budget?
The Merriam Webster dictionary lists several definitions of a budget, but the one I like best is: a plan for the coordination of resources and expenditures. Budgeting is an effective tool for allocating financial resources and for planning and controlling their use. In his book, Church Business Methods, Edgar Walz lists five special qualities of a good budget: 1. A good budget should be complete. The budget process should be thorough. It takes time to be thorough. Information and input is needed from a variety of stakeholders. It takes time to review current ministry operations and anticipate new initiatives. Study is needed to find ways to make ministry run more smoothly, efficiently and less costly. 2. A good budget will be equitable. Equitable is "fair or right." It will not hurt one ministry in favor of another ministry. A good budget

Why budget?
The great purpose of the Church is to fulfill the Great Commission in the spirit of the Great Commandment (Matthew 28:19-20 and Mark 12:33). In Acts 1:8, Luke references Christs instructions to the disciples to be my witnesses in Jerusalem, and in all Judea and Samaria, and to the ends of the earth. We have an opportunity to use the finances of our local church to be witnesses in our community (Jerusalem), our districts and states (Judea and Samaria) and global via missions (to the ends of the earth). Our purpose is clear. Our plans to affect

will give a good balance. Weve all heard stories of pastors going for extended periods without increases while buildings or ministries are expanded. Again, a good budget will give a good balance. 3. A good budget is capable of change. A budget is a tool to reach a goal. It is not carved in stone and delivered down from the mountain. At best, a budget is an educated guess. There are emergencies and opportunities that may require changes. Those in charge of managing the budget must not view it as something holy. They must not think of it as something they can't change. Practically speaking, a budget should contain provisions for contingencies or emergencies. I have been a part of a church that annually adopted a motion at the annual conference that allowed the LBA to modify the budget by as much as 10% of the total budget without requiring approval of the local conference. The trust of the conference in the LBA and its judicious use of that trust provided a means to make necessary adjustments along the way. 4. A good budget is attainable. Attainable means "being able to reach." A good budget includes a review of the giving history, of patterns of behavior or natural cycles within the church year. Giving information will not only help know what happened in the past but can be useful in setting goals for higher achievement. The budget should not include giving goals that the church can't reach or are unrealistic. Goals that are not clearly communicated may be considered unattainable and may have a demoralizing affect on the church. 5. A good budget is challenging. Challenging is "calling on (a person) to answer and explain." It is also "a demand to answer and explain." A challenging budget is a kind of test. It tests the faith of leaders and the congregation. It tests our vision to see that God will produce fruit through our efforts. It tests our faith to reach a lost world for Christ. It tests a leaders ability to share vision and to lead people to give.

budget and makes adjustments to each line item. It is an easy method to use and understand, but can become problematic if budgeted increases become automatic without evaluation of the need or the effectiveness of the expenditure. The method tends to rely more heavily on the past than the future. Program Budgeting: This method is very labor intensive requiring identification of costs for specific programs, activities, and ministries of the church. This method involves a lot of input from appropriate committees and groups to identify each program it conducts and the needs it serves. Each program is evaluated in terms of how well it is achieving its goals. If the program is achieving its goals, an assessment of the benefits to the congregation is made along with cost implications. The information from all programs is compiled into a program budget and decisions are then made based on the effectiveness of each specific programs; its purpose and goals; the required funding to achieve goals and benefits; and costs of any requested program change. The process is generally highly organized with lots of input and analysis. This method can be highly effective if carefully managed. Zero-based Budgeting: This method involves starting from zero as if everything is beginning anew. It requires a reexamination of each staff member, program and expense. This method involves many people in the budget process and requires them to take a detailed look at their programs and how they conduct their activities. The process can be quite time consuming and is not recommended annually. There is value to zero-based budgeting if it is used quadrennially.

The Process
In The Wesleyan Church, the ultimate responsibility for approving local church budgets lies with the annual conference. However, the church board (LBA) is responsible for recommending financial policies, the administration of those policies, and the preparation of the budget. Depending on the size of the church and complexity of operations, the LBA may assume responsible for the pick and shovel work of preparing a budget or delegate the work to a Finance and Stewardship Committee. In either scenario, the budget must be recommended by the LBA to the Local Church Conference. The use of a Finance and Stewardship Committee is a preferred practice. While the size of the committee and its composition is not specifically spelled out in the Discipline, practical experience recommends the size be limited and it include the Treasurer, the ViceChairman, the Trustee chair or representative, 1 or 2 atlarge member(s) and the Senior Pastor. A mix of experienced church leaders along with those with

Budget Methods
There a three primary methods or ways to approach budgeting. They are incremental budgeting, program budgeting and zero-based budgeting. All have their strengths and weaknesses, but a process cognizant of the options will result in a stronger budgeting process. Incremental Budgeting: Most churches use incremental budgeting. Incremental budgeting uses the current years budget as the basis for the next years

financial and administrative talents is invaluable to the process. The processes the Church uses are often timetested and a great source of strength, however the addition of fresh eyes and ears can result in significant improvements and opportunities. Naturally, a budget process that involves the input from a variety of stakeholders is most desirable to achieve unity of purpose and broader buy-in. Practically speaking, someone has to do the detail work of actually preparing the budget. Generally, the church treasurer is responsible for this assignment. The church treasurer is generally responsible for financial reporting as well. It is important that financial reporting to the LBA and church conference include budget as well as historical information. The budget should be presented in a manner consistent with the financial statement presentation. There is great value to having a church treasurer prepare initial projections which are then refined in conjunction with information from other sources. Again, input from many is a great value, but the process must begin with someone establishing the format. Naturally, a pastor has great interest and responsibility in the process, but may not be the most wise choice to do the pick and shovel work. A careful review of tithing history is of tremendous value in establishing a place to begin. Your church treasurer and/or tithing secretary may be a wealth of knowledge in helping to establish realistic parameters related to income. Different churches have different history and experience. My own experience has demonstrated the value of an annual review of giving patterns that focused on those who were board members, church members and friends of the church. Experience should show that church members tithe more than friends of the church and LBA members should be better tithers than the membership average. Naturally, those that carry the mantle of LBA leadership should demonstrate their commitment to the church by tithing. There is a temptation for pastors to be aware of specific donor giving patterns. Let me give this cautiondonor information is a very sensitive subject to donors and the primary role of a pastor is that of spiritual care. There are pastors with sufficient maturity and character to handle donor information, but it does create a significant burden which may outweigh the benefit. There is wisdom for a pastor to request information regarding changes in giving patterns so they can exercise their responsibility of providing spiritual care. Establishing a projected level of income varies from experience to experience and is dependent on the maturity of the local church. Observation proves that income generally lags behind numerical growth. More stable, established churches may budget using historical

information, such as prior years income. Income projections for growing or new church plants are much more challenging to determine. Of this I am certain, churches receive more support from their constituents when they communicate the need/vision and give donor or tithe statements in a timely manner. All costs are variable over time. In the course of a single budget year, some costs are fixed (i.e. mortgage) while others are variable. The largest area of expenditure is always salaries and benefits, followed generally by facility expenses. Unfortunately all too often, program type expenditures get squeezed by staffing and buildings. The single largest area of expense is compensation both salaries and benefits. Scripture exhorts us that a workman is due his reward (1 Timothy 5:18). Careful review of compensation should be conducted annually. A wise vice-chair and church treasurer will guide these matters through the board and/or committees, thereby helping their pastor(s) avoid an uncomfortable conflict of interest. Budget preparation time is an excellent time to reevaluate compensation packages. There are opportunities for tax-avoidance that can help pastors and their families without increasing the financial burden to the church. Accountable expense plans, housing allowances, and nuances in health insurance such as high-deductible health plans with health savings accounts may be worth investigating. All too often pastoral packages contain expenditures that those in the real business world would not consider as employment related. Entertainment allowances and expense reimbursements are generally of more benefit to the employerthe churchthan to the pastor. I suggest a review of compensation packages so we engage best practices to maximize the earning potential of our pastors and protect them from potential tax liability and compliance issues. The Church and Nonprofit Tax and Financial Guide (Zondervan), written and updated annually by Dan Busby, CPA (former General Treasurer) is a great resource and is available through the Wesleyan Publishing House (1-800-493-7539 or www.wesleyan.org). Outsourcing payroll services is a possibility worth considering. Of course, a payroll service familiar with clergy tax issues is a prerequisite. Outsourcing can yield an opportunity to update compensation package structure as well as relieve a church treasurer of a significant burden. Preparing quarterly tax returns (941s), remitting tax withholdings, W-2s, etc. are not the kind of thing that makes treasurers enlist for volunteer service. Does your church issue W-2s to church

janitors and secretaries? It should. Tax compliance and its increasing complexity scare many well-suited, qualified, and experienced persons away. Why not consider easing the burden of the church treasurer by outsourcing payroll? The second largest area of local expenditure relates to facilitiesmortgage and interest expense, utilities, maintenance, repairs, insurance. These costs easily mount up. Wisdom requires, as in the story of the great patriarch Joseph, that funds be set aside for lean times. It is a wise policy to allocate some funds from operations to be designated for repairs and replacement of major items (i.e. roofs, boilers, air conditioning units, etc.). There may be merit to considering paying utilities electronically and on a budget plan, thereby removing the hassles of issuing checks and making cash flow projection easier. There also is wisdom in establishing a budget threshold for expenditures in this area. A review of historical information is helpful in yielding a reasonable target. Of course there are extenuating circumstances, but it is very easy to overspend in the area of facilities. There is a very fine line to walk facilities must be clean, appealing and functional. I have great respect for the role of trustees and deeply appreciate the immense sacrifice and responsibilities they bear. However, all costs are variable over time and a church can easily find itself overly burdened by facility expense to the sacrifice of staff and ministry. Another significant area of expense to the local church relates to denominational assessmentsboth District and General Church. Funds channeled to the district as district budget and the General Church as United Stewardship Fund (General and Educational) provide an opportunity for the local church to share in ministry to Judea and Samaria and to the ends of the earth. Most districts follow the same basis for computing the budget base of each local church (see Discipline 2005.1), but a review of district standing rules is of value. There are provisions for exceptions and adjustments to United Stewardship Fund calculations relating to assessment limits and maximums, building projects, mother churches, new church plants, developing churches and restarts (see Discipline 2005.3). Approval for exceptions and adjustments are granted at the district level and the specific requirements and procedures can be outlined by your district superintendent. Naturally, funds need to be allocated for administrative expenses, as well as the needs of ministry (i.e. spiritual formation, evangelism, training, fellowship, etc.). Thresholds for facilities were mentioned previously, but there is merit for using the same practice for all areas of expenditure. A review over a period of time (generally years) gives a good view of the priorities of the church

and is useful in making sure that the intended priorities of the church are considered properly. Youve graciously followed along to this point, so allow me to pontificate on one more important topic restricted funds. It is absolutely vital to the integrity of the local church, and a legal responsibility of the board, to insure that restricted funds are expended in accordance with the wishes of the donor. The local church has the ability and responsibility to decline acceptance of restricted funds in some circumstances. These funds are not generally included in the budget process in the typical church. However, budgeting for restricted funds may be of value in some circumstances, particularly in larger churches. It is important that a local board of administration realize they are responsible for ALL church funds, not the just the operational budget. To that end, financial reports should be designed to include the balances and activities of restricted (by donor) and designated (by board) funds. I have been amazed to see the level of funds raised by youth groups in support of their various activities and ministries. Local boards are well served to be aware of the scope of these funds so they can exercise both their fiduciary responsibility as well as lend support to these vital ministries. Again, the LBA is responsible for all funds, not just the operating fund, and budgeting for restricted funds may be of value in some circumstances. Budgeting generally requires multiple drafts internally in committee before final presentation to the LBA and ultimately to the Local Church Conference. After final approval, it becomes the responsibility of the local board to act in accordance with the budget restrictions. Practically speaking, administration falls primarily to the treasurer and the pastor as CEO. Careful consideration and adherence to the budget, particularly in light of the cyclical nature of cash flows, is vital. Internal controls, practices, and financial reporting should be in place so that budgets can be monitored and expenditures authorized appropriately. I cant stress enough the importance of the relationship between the pastor and the treasurer. May Christ be honored by our service together in the realms of spiritual care and administrative support. Kevin Batman is the General Treasurer of The Wesleyan Church.