July 2009
Financial Planning

The spiritual side of church finances

During these tough economic times, it can be a real challenge to think clearly about the parish budget. As vestry members, we often spend so much time worrying over the “deficits” and “losses” and “funding gaps” reported each month that we are unable to see the true abundance that is right before us.

Many of us on the vestry are not familiar with the technicalities of parish financial reporting. We may even be afraid to ask the finance committee and parish administrator questions about the numbers.

To change our thinking about budgets from focusing on deficits to focusing on abundance, we must first learn to understand budgets appreciatively, and to ask the right questions.

Understand the income statement
In tough economic times, the income statement can become the main focus of your vestry meeting. If your vestry is spending all its time talking about the budget, especially budget deficits, then you have hit your first red flag. While it is important to reduce losses and overages, it is equally as important to recognize the considerable abundance that has been given. A good rule of thumb to reduce worrying about deficits: if the deficit gets to be greater than 10 percent of the total annual revenue sources, it is time to begin curtailing spending.

After assessing the income statement, it is time to begin assigning meaning to the numbers. Start at the top — not the bottom line — when reviewing your numbers. Determine how much of your parish revenue is variable. Most parishes get a significant portion of their revenue (65 percent or more) from weekly pledges and offerings of parishioners.

This portion of your revenue stream will vary with the number of parishioners, the number who attend and the number who pledge. Another red flag: if your parish weekly service attendance is declining, you should also anticipate a decline in monthly revenue. Once you understand how much revenue is at risk based on attendance variation, then you can concentrate on the other components of revenue (endowments, grants, etc.) that are not tied to attendance.

Consider the real questions
After you’ve reviewed revenue percentages and understand how revenue behaves, turn to your expenses. While traditional expense categories like “salaries, wages, benefits” or “repairs & maintenance” are tools of financial accounting, they tell us very little about the church’s ministry. Here is what we really want to know:
  • What is the impact of our church on the community?
  • Who are the people we help directly or indirectly?
A good way to begin to review expenses is to develop a functional income statement — one that categorizes expenses by ministry, activities or goals. Four common groupings are: worship/pastoral care; service to others; Christian formation and evangelism. Direct expenses like supplies can be traced to each of these categories. Indirect expenses like salaries can be distributed or “allocated” across each of the functional areas.

When vestries see a functional budget for the first time, it usually creates a stir. One vestry we worked with recently found it was spending three times as much on worship services as it was on outreach ministry— deemed a crucial priority for the fiscal year.

One senior warden we know says, “Once you understand of the impact of your budget dollars on parishioners and people in the community you begin asking the more important question — not just why are we spending so much, but instead, who benefits from this spending?”

From deficit to abundance
This realization provides us a great opportunity as Christians. It takes us away from the deficit and towards a place of abundance. While we still have to deal with deficits, we are not locked in by them. We can build  triggers into our budgets to help us respond to difficult financial situations and we find the strength we need by working together in Christian community.

To the extent that we engage in spiritual growth and Christian living that has both integrity and impact as vestry members, we are called to engagement with our budget numbers, not withdrawal. This means looking at the budget with a spirituality that presses ever more deeply into all the places of parish life in search of God’s presence and God’s gifts.

A member of St. James Episcopal Church in Hendersonville, North Carolina, Elizabeth (Ibby) Whitten holds a MBA from Wake Forest University and has worked with a number of Episcopal congregations and agencies in the areas of financial development and strategic planning.
This article is part of the July 2009 Vestry Papers issue on Financial Planning