Budget Transparency: Helping Your Staff Follow the Plan

Written by: Rebecca DaVee, CPA, Partner

SST arrowheadIn one of the shortest books located in the Old Testament, you will find the writings and visions of Amos, a shepherd from Tekoa, and a prophet to Israel during the eighth century BCE.  In one of his visions, Amos sees God measuring a wall, and ultimately the people of Israel, using a tool referred to as a plumb line[1].  This ancient construction tool allowed masons to determine if walls were perpendicular to the ground. A simple tool, a cord with a lead bob attached to one end.  You don’t typically see this antiquated tool on large construction sites today because the level has replaced it; the magic ruler with water and air bubbles, which you will find on every construction site and in most garages, used in home improvement projects.

You typically won’t find a plumb line hanging in the business office of the Church. But it’s there – the budget[2] – a tool created to establish a baseline for a ministry.  As many churches recently weathered the recession of 2009-2012, annual budgets were revised mid-year to realign ministry activities with declining contributions.

If most business administrators are like me, they roll their eyes and dread the budget process – why?  The answer is simple: because this process requires effective communication between financial types and non-financial types.  It requires ministry leaders to assess the effectiveness of their program activities.  It’s a tug-of-war; gathering, providing and explaining financial data, then waiting and compromise.

Let’s be honest, creating the budget is the last item on the ministry leader’s annual “to-do” list. However for the finance committee, it’s probably in the top two of annual accomplishments.  So the business administrator/controller is stuck in the middle.

Why?  Because most “accountant types” are not “ministry/program types” and what is important to the business office isn’t as important to the director of volunteers. Ministry leaders concentrate on outcomes, whereas accountants focus on accurate financial reports.  Somehow, inevitably, these church leaders collide and the result becomes quantified effective ministry.

After all, isn’t it all about results? Converting the lost to the saved, clothing the naked, feeding the hungry and paying the rent to avoid eviction; it’s all about doing the Lord’s work. Without a plan or a guide, can ministry leaders effectively align their ministry objectives with the strategic vision/mission of the church? Unless a miracle occurs, I doubt it.

Let’s redefine the annual budget.  It’s a strategic process of allocating resources for effective ministry.  The budget is a tool, just like the plumb line.  In order for the budget to be effective, the users must take ownership of the process.  This requires effective communication and relevant data – converting dollars into ministry objectives. The following steps are how I propose we redefine the budget process:

Step #1 – OWNERSHIP – Help your ministry leaders quantify and define next year’s ministry goals. Allow them to create their “bucket list” of events/activities that provide effective ministry. Help ministry leaders focus on what’s next and why!  Allow them to dream big!

Step #2 – CONVERTING CURRENT COST to OUTCOMES – Help your ministry leaders create their ministry equation (“We” (not YOU) spent X and got Y.) Let’s use a typical youth activity as an example:

Fall retreat (40 attendees) = $2,750 (provide detail of these costs)

Allow your youth director to define the goal of the event and then define the outcome. Now you are helping them calculate the cost of “doing ministry” – connecting the cost with both the objective and outcome.  Ask them to do this for all of their large events and activities.  You provide the detailed cost – they calculate the equation. The result: responsibility.

Step #3 – BASELINE Resources – In preparing the annual budget the accountant must start with estimated inflows from all revenue sectors including contributions, rent (if applicable), investment earnings, etc. Outflows must be segregated between “fixed and discretionary” costs. Fixed costs typically represent personnel, facility and debt retirement. So the baseline is result of the “net inflow” – revenue minus fixed costs.  The baseline becomes what is negotiated between ministry and support services (general and administrative expenses).

Step #4 – STRATEGIC Compromise – It’s critical to get Executive Management’s (Senior Pastor and/or Executive Team) buy-in (i.e., blessing) for the amounts to be used in ministry versus the amount needed to support those ministries. Executive Management should allocate the ministry dollars based on mission/vision goals. Now the budget becomes a tool for creating effective mission. Each ministry should be allocated a portion of the available baseline (i.e., X% worship; Y% missions and outreach; Z% family and youth.)

Step #5 – TEAM Commitment – Allow your executive team to lead and own this phase of the budget process with the goal for achieving “team accountability”.  Every employee is responsible for the mission/vision of the church, however they must be engaged. The accountant’s role in this process is providing relevant data to each ministry leader, and creating and refining the support services budget (postage, supplies, bank fees, etc).

Step #6 – FORMALIZE Budgeted Outflows – Once all the dollars and pennies have been allocated down to the specific account level (grants/financial assistance, advertising, curriculum, food, conferences, meals/entertainment, travel, etc.) and we have connected these costs to strategic events, now we consolidate the information and create the line-item budget.  This document can then be reviewed, scrubbed and approved by the executive team. Connecting funds with strategic objectives provides a communication tool to the finance committee, board of trustees/directors/elders, and ultimately, the congregation.

Step #7 – PLUMB LINE Established – Once the budget has been approved, monitoring and accountability play key roles in effective ministry. Once the New Year begins it is critical to provide relevant data to your ministry leaders. On a monthly basis it is imperative to provide financial information to each ministry leaders: detailed financial information that compares actual costs incurred compared with the original budget.  It is important to evaluate each “big event” in terms of ministry objectives, goals, and cost. This evaluation should be done as soon as possible, not weeks after the “big event” has occurred. Remember, these large events tap the church’s resources, not only the tangible items (cash) but the intangible ones (volunteers and reputation in the community, etc.)

Step #8 – ELIMINATE Silos – It is very common for some ministries or departments to become isolated and believe they must protect “their volunteers, budget and related territory.” Healthy organizations create clarity. According to Patrick Lencioni in his book, The Advantage,[3]becoming a healthy organization is “a messy process that involves doing a few things at once and it must be maintained on an ongoing basis in order to be preserved.”[4] Financially, emotionally and spiritually healthy churches build a cohesive leadership team that is intellectually aligned around its mission/vision. Every ministry decision must be guided by clarity, centered always on the strategic mission/vision of the church. Every ministry dollar should support and affirm the mission. “Every policy, every program, every activity should be designed to remind employees what is really most important”.5

Remember, the budget process is painful but the goal is effective ministry and transparency.  By allowing and inviting the staff to “own their budget” management opens the door for clarity and accountability.

The annual budget process is a tedious, yet overwhelmingly useful tool in all businesses. Churches are no exception. The budget acts as a grounding tool to show how the different departments and ministries align with the overarching mission of the church. Through redefining the annual budget, the church financial department with the help of the accountants can effectively communicate the financial goals of the church to the ministry department, pastor, congregation, etc. The transformed annual budget will ultimately lead to a more effective ministry as a whole: resources will be appropriately allocated, and everyone will be on the same page with the ministry goals for the upcoming year. Budgets are a necessity, but don’t have to be a headache. By following the steps above, your church will be able to create a well-oiled budget, and be able to continue doing God’s work seamlessly.

[1] plumb line. (n.d.) noun- a cord with a lead bob attached to one end, used to determine perpendicularity, the depth of water, etc. Dictionary.com Unabridged. Retrieved March 07, 2014, from Dictionary.com website: http://dictionary.reference.com/browse/plumb line.

[2] budget. (n.d.) nounan estimate, often itemized, of expected income and expense for a given period in the future Dictionary.com Unabridged. Retrieved March 07, 2014, from Dictionary.com website: http://dictionary.reference.com/browse/budget

[3] Lencioni, Patrick. “Chapter 1- The Four Disciplines Model.” The Advantage: Why Organizational Health Trumps Everything Else in Business. San Francisco: Jossey-Bass, 2012. Print.

[4]  Ibid.

5  Ibid.

Photo credit: Troxel, Steve. “God’s Plumb Line.” Gods Daily Word Ministries. Web. 07 Mar. 2014.