5 essential steps to manage your church accounting correctly
Church accounting can be a complex affair. But it doesn’t have to be. From disclosing financial information to managing your funding and expenses, discover how to manage your church finances efficiently.
Keeping track of donations and expenses while following church financial management processes is no small feat.
But when budgets are tight or resources are low, the duties of the church's accounting responsibilities can sometimes fall on an unlikely candidate.
With this in mind, we’ve included five simple steps to ensure things remain smooth and explain how the right church finance software can streamline and regulate the process.
How to manage church finances
But now we’re in a digital age of modernisation, to ensure that church finances are cared for with honesty, integrity, and competence, we recommend following these essential steps:
1. Correct budgeting
Like any organisation, budgeting becomes a priority for financial sustainability.
Begin by reviewing the last three to five years of your financial statements. Unless you see any significant shifts from year to year, factor in your attendance and how well your church performs financially compared to other churches.
You can divide you’re the financial management of your church budget into the following three areas:
Your staff should take at least a third of the budget in wages, with building and facilities making a quarter of your budget and expenses around 10%. You should save the remainder for donating to the ministry or any unforeseen payments.
If you’re new to budgeting, we recommend using software to help make things clear and stay organised, such as a Church Budget Planning Worksheet or annual operating budget forecast.
2. Record your donations and expenses
Donations are vital to a church, both in a tenable and legal sense. That’s why keeping track of donations and expenses is imperative.
Most UK churches use Gift Aid to make the most of their donations by increasing the value by 25%, which enables you to claim back the 25p from every £1 on income tax.
Applying Gift Aid benefits to your donations will allow you to increase the overall value. Therefore, tracking all donations is essential to capitalise on these Gift Aid benefits.
Providing Gift Aids declaration forms for your congregation helps organise proceedings while allowing you to track donations back to the original donor. To aid this process, entitle each donor to a “giving unit” and separate all your giving units into separate donor entities.
To make things easier, you can divide your annual donations by the number of giving units to give you an average donation value per giving unit. However, we recommend storing a more detailed assessment of your giving units just as a good measure of accuracy and in case you need to establish a more accurate expense assessment.
3. Encourage recurring donations
For any organisation, it's always easier to budget and plan with consistent and reliable funding recorded each month.
As with most churches, specific donations occur monthly. But this approach will allow you to record and manage your finances by separating regular donations from those more irregular.
Setting up recurring donation possibilities for your members can help your church with a steady flow of funds and ensure you have more consistent financial months to manage. If your church can establish an online giving method for its members, you can use digital transactions rather than relying on cash deposits.
The Church of England advises churches that wish to utilise 'Online Giving' as an effective method to encourage recurring donations to your church. MyGiving.Online offers a complete online donations management system that enables you to handle your donations with automation to save you time and provide convenience.
4. Safeguard your finances
From limiting access to bank details to reconciling ledgers and implementing external audits, your church is responsible for all the finances donated and spent to remain in the interest of your overall community.
Establish a consistent process for your church accounting, with multiple checks from multiple people, transparent reporting, and leadership accountability principles.
Some churches choose to separate their finances from their executive positions as a good measure of financial management. However, this is not always possible and suits larger churches with more staff members.
After all, the best way to safeguard is to keep a handle on your accounts, with regular checks from different committee members if possible.
5. Save for unprecedented incidents
There’s been a lot of uncertainty in recent years due to the pandemic and cost-of-living crisis.
All these aspects can cause extended periods of decreased donations without mentioning unexpected expenses that crop up occasionally.
With this in mind, your church should have a financial cushion and set aside money for unprecedented costs. Sometimes, emergency cash injections are required. So, we recommend your church puts aside 2-3% of its annual earnings just in case something unfortunate happens that requires expense.
Should churches disclose finances?
Disclosing finances as a church will help your organisation appear more transparent and trustworthy in the eyes of its members and the community.
Whether this means answering a question from the congregation about how church finances are getting spent or publishing reports on expenses, it goes against the grain for a church to keep things such as expenses in secret.
As stated in the New Testament:
· Acts 4:35,37; Acts 11:29,30; 1 Timothy 3:3,8 – “Those who lead in spiritual matters should also lead in financial matters”.
· 2 Corinthians 8:21 – “Money should be handled in such a way that is defensible against any accusation”.
· 2 Corinthians 8:18-24; Acts 6:3-6 – “Money stewards should be trustworthy people. More than one person should perform every function so that we have accountability”.
Be ready to demonstrate your funds with transparent intentions and actions for your funding to ensure your church maintains its valuable reputation.
Manage your church finances with an all-in-one software solution
Investing in specialised accounting software designed for churches, faith organisations, and other charities can help streamline your accounting with a complete turnkey solution.
· Tracking your Gift Aid, donations, and overall expenses
· Fund accounting and restricted funds
· Compile reports and generate invoices
· Payroll management
· Receipt scanning and bank feed accounting
Save time and effort with a secure financial management system for your church, so you can return to the essential duty of running your church.For more information, visit our website and get in touch if you have any questions.