The process of budgeting in a church setting is often viewed negatively. Either it's an unpleasant experience - not unlike a root canal - or it's a traditional ordeal, performed the same way each and every year. After all, we've always done it that way!

One pastor was overheard to say, "We prepare a budget every year but practically abandon it after six months because things tend to change so much."The cause? Poor planning, or making a budget so restrictive that unforeseen events cause the numbers to unravel.

For a church to be successful in managing its financial resources, budgets are an absolute necessity. Budgets are a control mechanism. But, more than that, they are a planning tool and an operational guide to help the local church achieve its short- and long-range objectives.

Luke 14:28 tells us that before one builds a tower, one sits down and counts the cost. Counting the cost should include maintenance of the "tower" or support expenses for new projects and programs. Ask yourself, "Can we afford this now? What about six months from now when we have to hire an additional 'tower' janitor? What about heating and lighting the 'tower'?" This additional planning shouldn't discourage you in what you believe God would have you to do. But counting the cost means counting all the conceivable costs - both current and future.

So, what's the best approach? View the budget as an opportunity to establish church goals. Recognize that budget requests will often require adjustment

to meet anticipated resources for the church as a whole. Then decide how to fund those objectives. The traditional method is to prepare a budget based on last year's activity first, then go back and make adjustments and additions. Move away from this approach by answering five basic questions.

Many church leaders assume that the board, staff, and membership agree on the church's mission, annual goals, and objectives. However, when funds are tight, differences in understanding can easily arise.

Such potentially negative side effects can be avoided if the pastor(s), board, and staff clearly define and communicate the church's mission, goals, and objectives for the upcoming fiscal year-and do this before initial budget requests are even developed. This will help everyone assess whether their plans for the coming year fit within the church's larger objectives.

Follow these steps:

1. Develop a clear, concise mission statement that is approved by the board, regularly reviewed and updated, and is widely understood by everyone in the church.
2. Based on the mission statement, church leaders should recommend specific annual goals and objectives to the board for discussion and approval.
3. Obtaining staff input before making recommendations to the board can help create involvement that speeds the budgeting process and unites people behind final budget decisions.
4. Establish general budget policies, such as:
   • Requirements for a balanced budget;
   • Policies on the use of cash reserves; and
   • Decisions about salary increases, hiring, layoffs, new programs, capital projects, and major fundraising efforts or capital campaigns.
5. Once budget policies based on the church's annual goals and objectives are approved by the board, they should be included in the package of instructions and materials for developing budget requests that is distributed to all church departments, and units.
6. Each department or unit that prepares a budget request should include a written narrative explaining how any continuing activities, new initiatives, or proposed changes will contribute to the church's goals and objectives for the coming year.
7. To determine the final budget, staff and board members use the narrative explanations to assess each budget request's potential merits and contributions for the coming year.

Past giving patterns are important to get a handle on what funds are available to provide for the church's goals. Historic information, which consists of both past income and expense figures, can reveal:

• Previous trends related to spending
• Special giving appeals
• General giving trends
• Costs of various ministry thrusts like building programs
• Mission emphasis

Ask key questions: Will past trends continue? Or, will new trends develop? You will need to apply current information to the historic information to project future financial patterns. Use graphs to display this data when possible.

You have to do your homework to get this information, but it is important to establish budget goals. Where to look? Most of this information should be in financial statements, the general ledger, or cash receipts and disbursements journals.

Budgets are projections and plans expressed in numbers. They are future needs with figures wrapped around them.

Assess your potential: Can your congregation handle an increase in their financial commitment? Perhaps a 10 percent increase in the church budget would exceed the ability of your people. There are those who would argue that people need to be "stretched," to "step out on faith," to be "challenged." But there is a fine line between faith and

Many churches write checks and then ask God to '~cash" them. A church may undertake a project and put it in the budget-a "faith budget." It may require a 15 percent increase in giving over the next year. In fact, the giving may have been increasing only 6 percent for the last three years.

Will expenses be met? The pastor will have the task of convincing the people that they need to increase their giving to meet the new budget. This results in more "pulpit-time" being devoted to the subject of money and budgets, especially if giving falls short of the projections. Also, if the budgeted items are purchased, a cash-flow shortage develops, which in turn puts more pressure on the congregation. The next logical step is to cut back ongoing ministries in order to pay the bills already incurred for the new project.

Without question, there certainly is a place for faith when it comes to giving. However, the faith challenge needs to be realistic and within the capability of a local congregation to meet the need. That is why looking back at past performance and then looking ahead with an understanding of the basic economic factors that affect giving, will go a long way toward producing a budget that will allow people to both stretch and reach the goal.

Look at your church's current financial structure. All expenses should be broken down into various divisions by either area of ministry (worship, missions, administrative overhead) or by departments (youth, music, education, and so on).

Within these categories, line items should be established. These are nothing more than individual expense categories. For example, in the Christian Education area you would generally have line items for curriculum and supplies.

Budget both income and expenses for these departments. This will allow you to track funds such as registration fees for a Christmas banquet as they are received. It will also permit you to determine the true costs of activities and ministries. It will help you answer questions such as:

• Did the church pick up any of the banquet costs?
• Did the youth group's trip to the mountains break even or was it subsidized with church funds?

The first steps in preparing a budget are to:

1. Determine past giving and spending activity; and
2. Set up a church financial structure into departments and income and expense line items. Since budgets are customarily designed to accommodate a twelve-month period, long-range plans must be accounted for in the process.

The next step is to make projections based on church goals and desire. Church leaders should ask themselves exactly what it is they want to do next year. Is it the same as this year? Or, do you want to launch off in another ministry direction?

One way to avoid excessive staff demoralization and conflict in times of tight resources is to have the board set expense and/or revenue targets at the beginning of the budget process. This way, departments and other units know in advance the resources they can expect during the fiscal year, and can develop budget requests based on these targets.

Tips: The best way to fund new projects is to first determine how much it costs to keep the church running at its most basic level.

Secular business calls this setting fixed costs. What does it take to keep the doors open? Once your basic costs are determined, you then begin to build from that point. Keep asking questions. Should we fund the music program at its same level? Do we need any new audio-visual equipment for the Sunday school? Can we afford both an enhanced music emphasis and yet buy this equipment? Can we afford both, or which is more important?

Identify unavoidable expenditure increases. These may be increases in salaries and fringes, higher costs for utilities and goods and services, full-year funding of a program previously funded for a partial year, or nonrecurring expenses for onetime renovations and major purchases.

This process of building from the bottom up will force budgeting decisions to follow the goals and priorities of the church. Otherwise, you could fall into the age-old approach of taking last year's budget and automatically adding a percentage increase. Too often, this is done without determining if last year's funds were being used as effectively as possible.

Develop a list of incremental increases/decreases. Since revenue and expense projections made early in the budget process can easily change, it is often helpful to identify incremental increases or decreases that can be made readily.

Consider these steps:

1. Each church department or unit manager should develop a list of incremental increases and decreases that could be made to their base budget requests. For example, they might identify and rank increases to their budget requests they would seek if an additional 5 percent of their current (or targeted) expenditure budget were available. They are also asked to identify and rank any cuts they would make if their budget requests had to be reduced by a specified percentage.
2. For each budget increase or reduction, the department or unit identifies the potential impact on revenues and expenses and provides a narrative statement describing the benefits/ disadvantages of the change.
3. The church board uses the incremental rankings to adjust individual budget requests up or down, depending on The most recent projection revenues and expenses.
   HOW DO WE COMMUNICATE THE BUDGET?

   Define budget strategies and communicate them to the church staff to build wide support for budget decisions. This will avoid negative reaction and adjustments in the future.

   Your congregation will usually want to be made aware of certain key points in the church budget.

   Frequently asked questions are:

   • What was our giving last year?
   • What was last year's budget?
   • Did we accomplish the projections or miss them? By how much?
   • What is the projected giving for the new budget year?
   • What is the new budget?
   • What are the major categories?
   • Do the leaders reasonably expect us to achieve this goal?

   Important: Don't allow the church budget to be the last word, to be chiseled in stone, for twelve) months. It may be necessary to make changes due to changing events or opportunities. Don't allow the ministry of the church to become a slave to the budget.

   If you need to move some of the line-items around within the budget, do it. That is not to say you should "trash" the budget whenever things change, because there still needs to be a certain amount of discipline involved.

   Start with a fundamental approach: Plan first. Budget second!