We find that most churches do not prepare an annual budget. While it does take some time to properly set one up, there are many benefits to doing so.
The process of budgeting for each income and expense line item forces the church to look at expenses in detail. This allows more scrutiny of each expense, and many times areas for cost savings are identified through this process.
A budget also provides the needed data to make informed purchasing decisions. For example, when resources are scarce, a budget can help you decide where you can cut expenses to provide the needed cash for a higher priority, or for an unforeseen expense.
Often, a budget is also used to make sure the church meets its bank loan covenants (i.e. debt service coverage ratio).
An often overlooked benefit of having a budget is it can help identify misuse of church funds. By comparing the actual expenses each month to the budget, expense categories that are over budget should be reviewed to determine the cause. This exercise only takes a few minutes each month but can help identify theft or fraud.
Reviewing the actual expenses versus the budget is made easy by most accounting softwares. If you need help setting up your budgets for 2016, please give us a call.