It goes without saying that keeping good records of all church monies is of the utmost importance. Despite that fact, some churches are careless in the way they handle their funds. To emphasize the seriousness of this situation, Manfred Holck writes, "At least two people should be in custody of the offering until it is deposited in a bank or placed in a night depository." Further, he suggests, "The financial secretary records individual contributions; the treasurer writes all checks; the chairman of the finance committee reconciles the bank statements; the head usher assumes responsibilities for counting the offerings and reporting the results and bank deposits to the financial secretary and treasurer."
The foundation for sound church finances is the financial records that the church maintains.
Keeping track of church finances involves four important activities related to records: budgeting, accounting, auditing, and reporting.
A budget is a detailed statement of the estimated income and expected expenses of an institution for the coming year. It is the core of church finances. Yet many churches know little about a budget; much less do they operate by one. To sell them on the idea takes time, as it does with any worthwhile change. For example, time, tact, and patience are required to change even the method of counting the offering in cases where the treasurer alone counts, records, deposits, and disburses monies. To suggest change may appear to question the honesty of the treasurer. It would likely help if the pastor spoke to the treasurer in terms of protecting his or her good name. Requiring two or more people to count and handle church money usually removes any reason for others to question the honesty of the financial officer. Ushers or deacons should have offering forms that provide for signatures or initials from at least two persons after the count.
The budget is also an essential tool for planning. Further, it serves as an instrument of authorization. Money should not be spent without the approval of the congregation. Certainly, though, it is impractical to have a business meeting every time the church must pay a bill. The budget authorizes pastor and board to spend money by the direction of the members one year in advance. It is also a control instrument, assuring the congregation that church income is being used to the best advantage in carrying out the church's mission.
Certain principles govern the use of the budget. The budget should not control church programs; rather, programs determine the budget. When beginning to develop the budget, an appropriate committee should not ask, "How much money will we have to spend next year?" Instead, the group should ask, "What does the Lord want us to accomplish in our mission next year?" Of course, along the way projected income has to be considered. The budget is a means to an end, not an end in itself. At the end of the year a church does not examine how closely it adhered to the budget but how nearly it reached its goals. After all, the church is a service-rendering, not a profit-making, institution.
Holck mentions many types of budgets. He writes, "There are a variety of budgets and financial approaches that your congregational leaders can use to develop the actual church budget; program budgets, line-item budgets, zero-based budgets, unified budgets, capital budgets, dept-retirement budgets, and perhaps others."
Generally, however, churches choose between two types of budgets, the departmental and the unified. With the departmental budget each church department determines its own budget, raises its own funds, sometimes has its own bank account, and spends its own money. Most authorities consider, though, that departmental budgets are unacceptable if a congregation wants to follow sound business practices. In the opinion of James Hamil, "For a church and its leadership to successfully control the contributions and expenditures of a church budget, it must be a unified budget."
In the unified budget the congregation determines the budget for the church and each of its departments, funds are raised at the direction of members, all are deposited with the church treasurer, there is one bank account, and only the church treasurer (with co-signer) writes checks. Each department may have a treasurer and keep books, but all transactions are also recorded on the books of the church treasurer. Each department has an account on the church books. The unified budget falls within the realm of sound business practices.
Steps usually followed in preparing an annual church budget are as follows:
1. Each department of the church submits a list of budgetary requests for the coming year.
2. Requests are compiled by a budget committee which is representative in nature, composed of pastor, a deacon, two members of the congregation, and a representative of every department of the church; the representative explains his or her department's request and in turn explains to the department any changes made.
3. The budget committee recommends a preliminary budget; its original estimate of expenses may be higher than can be afforded (if it thinks in terms of what the mission of the church should be next year, rather than how much money it will have to spend).
4. The budget committee submits its proposed budget to the official board of the church; it makes any needed modifications.
5. The congregation receives the proposed budget at its annual business meeting, accepts, deletes, or adds to it, and then adopts it as the official financial document of the church for the coming year.
The most common way of financing the budget is simply through worshipful giving of tithes and offerings in the congregation's services. As Hamil notes, however, "Many churches have discovered that the better way to operate their financial program and to assure meeting their obligations is to operate on a strict budget, and to get the congregation to pledge or underwrite that budget in advance." Certainly, a pastor should avoid unintentionally training the people to hold tithes and offerings until a situation arises where he or she must pressure them to give.
A good approach, then, is that of conducting a commitment campaign in which people are asked to pledge to support the budget for the coming year. A high percentage of a congregation will likely respond when they receive and return pledge cards in a regular worship service. For many people, determining the amount of a pledge begins with the estimated sum of their tithes for the next year. Some churches have used something like this for many years. They have more generally termed the approach the "Every Member Canvass" method. Holck uses the term "Every Member Response Plan."
Hamil successfully used this approach in his church for years. Explaining why people should readily pledge to support the budget of the congregation, he writes, "We pledge to (or promise) the Lord that we will live for Him when we are saved, we pledge when we marry, we pledge when we join a civic group, we pledge when we buy our home, we pledge when we buy insurance, we pledge when we take a job or hire an employee, we pledge when the utility turns on our electricity or gas. Our lives are filled with promises to make good on some commitment."
After mentioning several building projects that his church had paid for through the years, Hamil explains, "There was never a drive to raise funds for these projects, nor has there been a building fund drive since installing the pledged system of financing" because such a system "makes numerous financial drives and pressures unnecessary." In fact he counsels against taking "frequent offerings for items not budgeted." George Harrison expresses the same sentiments.
Ray Bowman declares, "For a church without debt to sustain modest growth, the giving level needs to be about 5 percent to 6 percent of the people's income. And to sustain growth of 10 percent or more a year, the people of the church need to be giving 8 to 12 percent of their income. . . . It typically takes about five years for a new member to develop the commitment and discipline to financially support the church as strongly as the long-time members do."
Hamil's approach on the pledged budget centers on a giant annual Commitment Sunday Rally. In both services, in the mid-week meeting which follows, and even on the following Sunday, each person receives a pledge card, which he or she is asked to fill out and return, after prayer, in those meetings. He explains that in this way "between 80 and 90 percent of the total budget is usually received." For those who don't participate in the initial effort for whatever reason (including being absent in those services), the committee coordinating the project has an organization in place to make personal contact with them.
The noted pastor cautions that, "We should never antagonize those who do not pledge. . . . The leadership of the church might do well to tell the people that they will not be sent reminders of their progress in paying their pledges. The Memphis church told the people that their pledge to the budget was a sincere commitment to God, but in the event their financial status changed (loss of job, a decline in business), their pledge could be reduced or canceled with no questions asked." Hamil goes on to report that the income of the church was always larger than the total pledged each year!
The next component in a good church financing program is accounting.
An adequate book-keeping system serves a congregation well. Accounting involves recording, classifying, summarizing, and reporting monies of an institution. Its purpose is to safeguard funds from loss, theft, waste, or misuse. It provides for budgetary control. It furnishes to the administration information needed for policy formulation. An acceptable set of books in the office of the church will have two kinds of accounts. Its regular accounts will provide columns for receipts and disbursements. A daily ledger records all transactions before they are later posted in the appropriate account and column. The encumbrance accounts have a column for budgeted expenses and another for a running total of the amounts spent for each department of the church.
Hamil indicates something of the accounting at his church, explaining, "First Assembly, Memphis, had a line item budget with thirteen identified lines: 000--Administration, 100--Promotion and Public Relations, 200--Maintenance, 300--Sunday School, 400--Athletic Activities, 450--Youth Division, 500--Children's Division, 600--Music Department, 700--Adult Ministries, 800--World Ministries, 900--Debt Retirement, Interest, and Insurance, 1000--Contingency, 1200--New Equipment and Capital Improvements."
Auditing is generally one of two kinds. The pre-audit is conducted in-house by the bookkeeper/accountant at the church to determine if the item has been budgeted and if money is available to purchase it. Hamil advises, "A purchase order should be approved only if it is an authorized budget item and sufficient money is available." The post-audit is usually done by a professional firm for the larger church. Smaller congregations sometimes simply hire an accountant who keeps books for a number of smaller businesses to examine its records and write an opinion of what he or she finds. Other churches may feel they cannot afford either the services of a professional firm or a local accountant. In that case, they may simply name a committee of church members, one of whom knows something about bookkeeping, to do an audit of its accounts.
A church has several "publics" that it regularly needs to inform of its financial standing. Naturally, the pastor must examine a summary of the monetary transactions in the congregation on a weekly basis. Then the board always receives a monthly financial statement. Studying its contents becomes a part of its regular meetings. Finally, the members of the church receive at least an annual report from the treasurer. In its annual business meeting, it will also see the report of the auditors.
Wayne Pohl advocates complete openness, total disclosure in reporting on church finances. In one chapter entitled "The Spiritual Side of Mammon," he declares, "Secrecy breeds curiosity, suspicion, and gossip faster than darkness brings out cockroaches."
Churches should take care in their approach to finding funds for capital improvements.
Hamil says, "Methods for raising money for the Lord's work should be sanctified, sensible, and scriptural. Some of the methods used to enhance God's work and His church must cause the angels in heaven to blush and the Son of God to turn away in shame."
Referring to tithing as the ideal means for financing all of the work of God, Harrison declares, "Considering it from a purely materialistic point of view, there is no more lucrative a manner of raising money for the church than by tithing. It would solve many problems and reduce many annoyances. If every Christian family in the United States tithed . . . there would be no need for every-member canvass, nor for gadgets and gimmicks."
In financing the construction of its facilities, a number of means are open to a church. These range from simply a fund-raising scheme, such as taking pledges, to various kinds of loans, to the sale of bonds.
Generally, a congregation begins early to accumulate the necessary funds for capital improvements. It may do so through securing pledges for weekly, monthly, or lump-sum contributions. Experience suggests that the period of time for pledges to last should be short, generally one year. If necessary, conducting a second pledge drive following the period of the first is more effective than one where the period of commitment lasts too long. Patrick Clements says, "The philosophy behind a capital campaign is that it is wise to build up your war chest before you go to battle."
Concerning those who head up such a fund-raising effort, he writes further, "Frequently the steering committee is drawn from among the ranks of the members who are already significant financial contributors, and often part of the program is to ask the committee members to make substantial commitments so that when the congregation is finally approached, a considerable portion of the funding has already been committed."
E. M. Clark says that such key "leadership usually gives at least half of the final total." On the same general subject, Clements says, "I personally have no problem with a campaigner who suggests that a church seek to raise one and one-half to two times its general fund over a three year period."
Business practices dictate that a church have on hand at least one-third of the cost before construction begins. It seems in the nature of things that people will open up to give when they see something actually happening on the church premises. It is then that some use a specific incentive plan as an appeal to give. Members often give to buy a window, a door, a pew, or the furnishings of a room once construction is about to get underway. In this way, the church should be able to accumulate a total of at least one-half of the cost on the building before it needs to use borrowed money in construction.
Banks, and other lending agencies as well for that matter, are sometimes hesitant to loan money to churches because of the lack of stability in religious groups, the one-purpose element of church buildings, and the unpopularity of foreclosing on a church group. In the event that a loan company does foreclose on a religious organization, Harrison explains the "one purpose" hindrance, saying, "Church buildings are one-use buildings. For the most part, church edifices are of little use other than the purpose for which they are built." Thus when a loan agency forecloses on a church, it is difficult to find another buyer. Still, Clements declares, "If you decide to borrow, commercial banks are certainly a viable option. In fact, they are the single largest provider of capital financing for churches across the country."
To seriously consider an application for a church loan, banks usually will want to see a copy of the following:
1. Current Financial Statement (income, disbursements, assets, liabilities, balance sheet);
2. A five year record of income and disbursements;
3. Complete building plans, drawings, pictures;
4. Site and plot plans, picture of land, size of the parcel of property;
5. A history of the church (regarding its family units);
6. Resume of pastor's ministry, education, and experience;
7. Complete breakdown of building costs (contractors bid, cost of work to be done by the church members);
8. List of current mortgages and payments being made;
9. Projected growth of church (next five and ten years);
10. Projected income growth (next five and ten years);
11. Resume of board members and other influential members.
As to depending on church members to do part of the work themselves on a building project, Clements observes that such a plan usually falls short of what is calculated. Everyone gets excited the first work day or two, or maybe even through the stage of closing in the building. That excitement, however, does not last forever. "At the end of the day, they all walk away and who shows up the next time? Usually it's the pastor and a few other individuals."
Certain financial rules of thumb apply to church loans. Among them are that one should not seek a loan that is greater than three times the general annual income of the church. Others suggest that it should total no more than $300-$500 per wage-earning member. Another measuring stick for determining the amount of the loan a church seeks is that the monthly payments should not exceed an average Sunday's income. Generally, too, a pastor is wise to speak to the loan officer about the number of families who pledge to the support of the church rather than the number of tithers. Not all such financial consultants know about tithing. Also, in many cases the pastor will communicate more honestly what the loan officer wants to know if he or she speaks of the number of adherents rather than the number of members.
All of this serves as a reminder that borrowed money must be paid back. In contemplating how much a church should seek as a loan, on the basis of whether or not it is prepared to make the payments, it is a mistake to count on dramatic growth to bring in money enough to relieve all concerns. Clements says, "A key principle of wise stewardship is that you work with what you have today, not with what you think you might have tomorrow." He suggests further, "When you're figuring out how much monthly expense you can afford, don't forget to include the cost of maintenance in your calculations."
Some scholars discourage the borrowing of any money for capital improvements at a church. Instead, they recommend a pay-as-you-go approach. Clements writes, however, "In my view, pay as you go makes sense only if your project is relatively small and you can get it done quickly with volunteer labor and maybe one or two subcontractors."
Harrison suggests that a church should not overlook savings and loan associations when seeking funding for new facilities. He writes, "The officers of these institutions, just as officers of banks, are men interested in their communities. Give serious consideration to discussing your need with them."
One church I knew had difficulty in finding a lender for the funds to build a new sanctuary. When its pastor turned to an insurance company, he was finally successful. Harrison says, "Insurance companies are custodians of much wealth in this country. Many of these companies make loans to churches."
Hamil writes, "Many churches have found that the issuing of bonds is a viable means of financing church buildings." Some companies will write them and print them, yet offer only suggestions in selling them. Hamil adds, "There are bonding companies that will prepare, issue, and sell the bonds for the church for a fee. This is often a rather high fee." Clements explains, "The key here is that the bond underwriter takes full responsibility for selling the bonds and guarantees to the church that the funds will be available on a particular date." In suggesting an alternate approach, Hamil says, "However, a church can issue and sell its own bonds." In such cases, of course, the congregation would need expert legal counsel.
Among the types of bonds a church may seek to sell are first mortgage bonds.
As the title implies, bond holders have church properties as security for money they have lent the congregation by purchasing the bonds. In addition, there are church-income, or debenture, bonds. These are no more than promissory notes. From its weekly income a congregation promises to deposit with a bank sufficient funds to pay both interest and principal on the bonds as they come due. Some banks will cooperate with a church in serving as the holding and paying agent.
When I was seeking the counsel of a loan officer once, he said to me, "The people who will buy the bonds of your church are those who know you and believe in what your congregation is doing." With a similar understanding, Hamil writes, "In most cases, much of the bond issue will be sold to the members or those with some connection to the church." To further explain what he had learned by experience about it, that noted pastor reported, "By using a pledged budget and other responsible fiscal operations, the church had established sufficient confidence that in 1970, in one day, it sold $750,000 to individuals in debenture bonds. In 1978, the church announced that it would sell $246,000 in bonds on October 1. Before the bonds were printed the total issue was sold out." Of course, that was a large church that was well-known and well-respected in a sizeable city. A smaller congregation might not experience such glowing success.
In some cases where members buy the bonds of their own church, they will neither collect the interest as it comes due nor cash the bonds in when they mature. Instead, the purchase price and the uncollected interest become gifts to the church. Hamil, however, cautions that no hint or suggestion of such an expectation should be made in selling the bonds. Bond sales must be kept on the level of a business deal.
Others suggest that, at any rate, it is better to sell to members than to outsiders. Bowman, however, writes, "But whether your debt payments go to a bank or to church members, the interest--about fifty cents on every dollar paid on debt (depending on the interest rate and the length of the note)--is money that cannot go to ministry."
On rare occasions individuals have funds that they might consider lending to a church for capital improvement purposes. This, however, is probably the least likely source to turn to. One thing is certain--it should never be a person who is a member of the church. Otherwise, that individual would face temptations to assume a degree of control over the entire operation of the congregation simply because it would then be in his or her debt.
Most denominations assemble funds specifically for lending to churches for construction purposes. According to Clements, "Quite often these entities are combination lending and investing firms in which members and friends of the denomination can invest reserve funds and retirement savings, which in turn are loaned out to churches and ministries." Sometimes, though, monies available in this way are somewhat limited.
In summary, churches need to follow four basic activities in managing their finances--budgeting, accounting, auditing and reporting. The leadership should acquaint itself with the various approaches to these activities and see that capable, well-trained individuals carry out these functions in a manner that is above reproach. Churches embarking on building projects have a number of options open to them for obtaining the necessary funds. Among these possibilities are fund-raising pledge drives, various kinds of loans, and the sale of bonds. As with all financial dealings, the church should make its choice wisely and appropriately and only after seeking the counsel of the Lord.
Selected Bibliography for the Series
Barney, Kenneth. Adult Teacher. (Fall1991).
Berg, Jeff and Jim Burgess. The Debt-Free Church. Chicago: Moody Press, 1996.
Blizzard, Samuel. "The Minister's Dilemma." The Christian Century, April 25, 1956, 508-510.
Bowman, Ray. When Not to Borrow. Grand Rapids: Baker Books, 1996.
Clark, E. M. How to Be Happy Giving Your Money Away. Springfield, Mo.: By the Author, 1996.
Clarke, Adam. Clarke's Commentary. Nashville: Abingdon Press, n. d.
Clements, Patrick L. Proven Concepts of Church Building and Finance. Grand Rapids: Kregel Publications, 2002.
Erdman, Charles R. The Second Epistle of Paul to the Corinthians. Philadelphia: Westminster Press, 1966.
Hamil, James E. Pastor to Pastor. Springfield, Mo.: Gospel Publishing House, 1985.
Harrison, George W. Church Fund Raising. Englewood Cliffs, N.J.: Prentice-Hall, 1964.
Henry, Matthew. Matthew Henry's Commentary. Grand Rapids: Zondervan Publishing House, 1961.
. Matthew Henry's Commentary. Vol. 6. New York: Fleming H. Revell, n. d.
Holck, Manfred, Jr. Church Finance in a Complex Economy. Nashville: Abingdon Press, 1983.
. Money and Your Church. New Canaan, Conn.: Keats Publishing, 1960.
Johnson, Albert J. A Christian's Guide to Family Finances. Wheaton, Ill.: Victor Books, 1983.
Johnson, Douglas W. Finance in Your Church. Nashville: Abingdon Press, 1986.
Johnson, John Warren. How You Can Manage Your Money. Minneapolis: Augsburg Publishing House, 1981.
Kevan, E. F. "Genesis." In The New Bible Commentary, ed. F. Davidson. Grand Rapids: William B. Eerdmans Publishing Co., 1953.
Maclaren, Alexander. "Matthew." In Wesleyan Bible Commentary, Vol. 4. Grand Rapids: William B. Eerdmans Publishing Co., 1964.
Pohl, Wayne. Mastering Church Finances. Portland, Ore.: Multnomah Press, 1992.
Robbins, Paul D. "The Ministers of Minneapolis: A Study in Paradox." Leadership. (Winter, 1980): 118-122.
Zahniser, Clarence H. "Second Corinthians." In Wesleyan Bible Commentary, Vol. 5. Grand Rapids: William B. Eerdmans Publishing Co., 1965.
About the Author
Dr. Charles Harris is a recently retired Professor of Bible and Pastoral Ministries as well as Chairman of the Division of Church Ministries at Central Bible College in Springfield, Missouri. He was associated with the college for thirty-eight years.
In addition to his career as an educator, Dr. Harris is also an author. His writings have appeared in the Sunday School Counselor, God's Word for Today, and the Adult Teacher. Among his works are three books--What's Ahead, Proofs of Christianity, and Under the Glass: An Analysis of Church Structure--as well as a commentary on the Book of Second Corinthians in the Complete Biblical Library. He was a contributing author of Power Encounter: A Pentecostal Perspective.
Dr. Harris holds a bachelor's degree in Bible, a master's degree in counseling, and a doctorate in education.