Episcopal Church Foundation Vestry Papers - for leading congregations

Effective budgeting is not the result of the stressful days and nights of budget preparation, or the reams of financial spreadsheets produced, or even the many hard choices required to finalize a budget.

Creating a sound budget is the result of two ongoing disciplines: clear visioning, discernment and articulation of your congregation’s mission and ministry; and routine, year-round internal monitoring of financial results and regular reporting within the vestry and to your congregation on its financial status. These two disciplines establish a foundation for creating an annual budget.

How, then, to begin?

• Set up a formal budgeting process that makes sense for your congregation;
• Establish written budget premises and priorities;
• Set a time line for creating your budget with clear milestones;
• Build flexibility into your budget assumptions to account for the uncertainties of the current environment;
• Remember to incorporate your anticipated capital requirements (monitor & repair).

Start by constructing a thoughtful, practical budgeting process. Smaller congregations with limited resources to call upon (e.g., no full-time staff) will need to develop a more “top down” process, one led by the rector or vestry treasurer who will keep the process on track. Larger churches with greater re- sources will be able to develop a more decen- tralized process, one where program staff plays a greater role in budget development and priorities. In either case, the process must be sufficiently inclusive — involving as many constituents as is practical — so that there is true ownership of the final budget.

The rector and the vestry should create a one-page summary of the key budget premises and priorities, for this will serve as a valuable guide in many of your budgeting decisions. By sharing these with the congregation, you will enhance transparency about the decision-making process and minimize some of the personality dynamics that can naturally occur when people are passionate about their programs and ministries.

Begin four to five months in advance

Give yourself plenty of time. Begin the budgeting process four to five months before the start of the new budget year. Make clear who has what responsibilities, and set realistic milestone dates for internal progress review meetings.

Create a baseline budget that captures your best sense of what is attainable for the current environment. Anticipate a few scenarios, and be honest about your expectations: the worst case, the most likely case, and the best case. Identify (ahead of time) expenses that can be reduced or eliminated, as needed, if income falls short of budget through the first quarter of the year.

Unless you are planning major capital improvements, you will not need to develop a separate capital budget projections. But remember to incorporate baseline maintenance and repair into your operating budget (even if you intend to capitalize these costs on your books). Too many parishes fail to budget for basic capital needs — and this is key, especially in tough times. 

Issues to remember

Avoid expenditure budgeting that simply takes the results of the prior year (or years) and applies some percentage for growth or contraction. Rather, build your expense line items from the ground up. If a certain program costs $X thousand dollars, the accuracy of that assumption should be tested and proven by back-up detail that describes the components’ costs.

Bear in mind that cash flow — the timing of cash inflows and outflows over the course of the year — can be a source of great strain on a congregation. Even a readily attainable baseline budget can find itself seriously short of cash. Setting up a basic cash flow forecast can help identify when to anticipate cash shortfalls and what steps to take to address them. For example, this year some persons or families may not be able to make pledge payments as regularly as in the past. Deter- mine a strategy to meet cash flow needs if pledge income is more delayed than in the past.

Affirm that your congregation has the necessary safety measures in place and enforced to prevent mismanagement of funds. The budgeting process provides an opportune time to review what checks and balances are (and aren’t) in place.

No budget — in good times or in tough times — will work out exactly as you had planned. The challenge is less about precise forecasting, and more about managing your financials so that you stay within the guiding premises of the budget.

Craig A. Bossi is the vice president for finance and administration for the Episcopal Church Foundation.