Is It Budget Time Again?

by Maurice L. Painter

Some magazine and newspaper articles, as well as books about individuals born between 1946 and 1964, reveal a bias for restricting contributions to churches and other organizations from which people receive meaningful benefits. Thus, this article is written to those responsible for committing scarce resources to uncertain futures who want to get more from their annual operating budgets and give more to their contributors.

A Budget Is
Ask different people about budgets and you will get different answers. To staff members, budgets get in the way of activities. To the budget-review committees, budgets hold staff members accountable. To those compiling and coordinating the budgets of varying ministries, it consumes vast amounts of time and may have questionable benefits. However, budgets are critical to any church's future success.

Budgets show the allocation of resources to accomplish the mission, vision, values and goals of the church's ministry plan during the term of the budget. In effect, budgets are dollars and cents representations of ministry plans for producing meaningful results during the upcoming year.

In addition to quantifying ministry plans, budgets provide other benefits. They are used to authorize action represented in the approved spending plan, to assess performance by providing a standard for measurement, to motivate employees when bonuses are awarded to those surpassing the standards and to satisfy the legal and contractual requirements of lending institutions that want signs of competent management.

Budgets also provide boundaries and benchmarks. Every financial resource available must focus upon fulfilling the church's mission and vision. Program ministers should know that funding requests for activities and materials will not be approved if they do not contribute to fulfilling the church's purpose. During the year and at year-end, actual program results should be compared to those that are planned and budgeted to determine the productivity of expenditures and to prompt necessary changes needed to make subsequent allocations more productive.

A recent conversation with the executive pastor of a large church concerning 1998 illustrates changes needed for greater resource productivity. The church's target audience is 30- to 45-year-old professionals in a suburban location. The pastor shared the church's need to add an additional adult education minister to increase the value being added to younger families entering the church. This is a priority staffing position in a ministry growth plan, but means delaying the planned hiring of another minister to lead an important initiative. However, 1998 revenues should have increased by year-end because of the new, focused attention to this group and should provide for ministry expansion in early 1999.

3 Approaches--
Two Good, One Worthless
Of the three approaches to budgeting most often used, the simplest but least beneficial is taking last year's budget and adding an appropriate impact of anticipated receipts. This budget is a defensive strategy for maintaining present ministries that may no longer be productive. It requires little analysis or planning and will not fund an effective ministry because the basic numbers reflect last year's circumstances, which may no longer exist or exist in the magnitude that generated last year's budget.

One of the two preferable approaches begins with the current year's budget and actual expenses and asks the question, 'Could we accomplish the same with less?' Legendary entrepreneur Ewing Kauffman, of Marion Laboratories fame (now Hoechst Marion Roussel) and owner of the Kansas City Royals, used this method to deal with creeping expenses. He insisted that his managers start budgeting at an expense level 10 percent lower than that of the current year. Managers had to justify this 10 percent before they could add additional expenses for the next year. His acquisitions and founding of the Ewing Marion Kauffman Foundation attest to the success of this approach. I recommend it to churches willing to challenge tradition and that are interested in developing purposeful financial leadership among staff and laity.

Kauffman's "start-with-less" approach recognizes the difficulty of zero-based budgeting in the real world. However, zero-based budgeting is the most preferable because it requires the justification of every proposed expense. The negative of additional paperwork becomes a positive when leaders reach a deeper proficiency in their ministries. Those making requests and those compiling them are forced to explain the rationale and expected results of the expense and to coordinate over-lapping ministries, such as adult education and preschool/children's ministries to young families. The pastor, executive pastor and budget-review committee must project the effectiveness of every dollar invested in personnel and programming. Zero-based budgeting demonstrates that ministry results are all that count.

The zero-based approach especially is useful when poor economic conditions affect the giving patterns of members. New Hope Baptist Church in Fayetteville, Ga., experienced this several years ago when Eastern Airlines, headquartered nearby, went out of business. New Hope's program administrator told me that all activities and expenditures had to be carefully considered for the contributors who were affected.

Zero-based budgeting also is useful in times of economic prosperity and population growth. Such is the fortunate circumstance of Hunter Street Baptist Church in Hoover, Ala., a bedroom community south of Birmingham. Projected attendance growth will challenge traditional staffing ratios as they retire construction debt and maximize the involvement of lay leaders. Using this budgeting approach will help them assimilate more of those attending their two worship centers.

Some Unusual Guidelines
Churches are labor intensive. Large churches hire professionals to lead and train volunteers to serve the increasing needs of an expanding populace. But if you examine the average church budget, there is little allocated to the development of Bible study leaders, lay leaders and lay and professional administrative leaders. These are the people who are on the front lines of providing quality and excellence to attendees who must be assimilated to become contributors. Corporations invest 10 percent of their budgets each year in the training of leaders and others who interface with customers. This is a practice that churches should incorporate as well.

Likewise, churches should allocate 5 percent of their annual budgets to promotional activities, including broad and specific target direct mailings, billboard advertising, radio and television infomericals and program sponsorships. Frequency and reach are the two words describing the impact being purchased, and they begin with a good understanding of attendees presently being attracted, especially those indicating their satisfaction by giving more hours and dollars.

Encouraging attendees to tell their friends should be complemented by promotional campaigns illustrating life-stage needs the church is prepared to meet. Attendees attracted by promotional campaigns should be categorized by age and questioned about the specific message and medium which attracted them. Such research is important to attaining promotional cost effectiveness.

I have learned from consulting with advertising and public relation firms and other labor-intensive companies that personnel and debt service expenses should not exceed 60 percent of budget expenses. Simply stated to churches, the maximum amount of funds should be allocated to promotion, programming, ministries and missions and leader development. This will challenge the pastor and executive pastor to plan for and hire the best combination of staff leaders possible to achieve the vision and to focus upon adding value to each segment of the audience. It will challenge those negotiating for facility financing to search for the best arrangement, leaving local politics out of the equation.

Training Staff
It is commonly understood that the words, "subject to funding," are implied in the approval of many budget requests. For this reason, staff members should group and prioritize their requests around specific, expected results. They also should prioritize the expected results so that those most important are funded before others become "subject to funding."

Additionally, while staff members should budget anticipated expenditures by month, they should understand that delays may occur if receipts are insufficient. If the expected result is valuable enough to budget initially, perhaps the church should reserve for such cash flow discrepancies in months of excess receipts or draw down some of its line of credit. The issue is not the interest cost; the issue is transforming lives of people impacted by the expenditure.

Budget requesters and compilers should think about their budgets from three capacity perspectives. The normal capacity is the projected number of persons to be ministered to through each ministry--the sum of the average attendance for the last several months (ideally increasing with momentum) plus the projected numbers resulting from implementing the church's plan or the promotional campaigns minus projected losses because of relocation or other factors. This capacity is the basis for the budgets submitted by the functional ministries. It impacts space allocation, pupil-to-leader ratios and requests for materials and supporting technology.

Priorities within each budget must consider two variations in normal capacity--pessimistic capacity and optimistic capacity. Pessimistic capacity is reached at 80 percent of normal capacity. This may occur when fewer people visit the church because the senior pastor has relocated to another church, when the church breaks its pattern of regular promotion campaigns or when people do not respond to the implementing actions of an individual plan.

Optimistic capacity is reached at 120 percent of normal capacity and may result from better targeting of promotional efforts or from the receipt of value by additional segments of the church-wide or ministry-specific audience. Thus, each priority should project the resources required at 80 percent, 100 percent and 120 percent of normal capacity.

Vision, Vision, Vision
To paraphrase the Scripture, without a vision, good ministry plans perish at the hands of budget-review committees. They need to understand the prospective uses in compiling the requested budget before they look at the first number. Ideally, budget-review committees will trust the staff to develop the new budget that produces valuable results and will be more concerned about ensuring the adequacy of monthly funding. For this reason, the first session should begin by considering the guiding vision and the goals for the budget year, without allocating resources to each goal.

Once the committee understands and agrees with the goals, show the aggregate funding of each action along with the assumptions about capacities, leaders, materials and space. If requested, be prepared to separate the vision budget into the ministry budgets, which should be presented in the same way. Once approved, the aggregate vision budget will be the presentation communicated to the congregation. This process will keep the staff focused on the mission and vision of the church. Bob Gladney, business administrator at Dawson Church in Homewood, Ala., successfully uses this vision concept in promoting the stewardship needs for each quarter.

The next issue for the committee will be the comparison of projected annual receipts with planned expenditures. The group also should show total receipts on a per capita basis using the average campus attendance for Bible study, worship or some reliable combination of the two. This will be necessary for projecting the funding at 80 percent, 100 percent and 120 percent of normal capacity. The comparison of projected receipts and disbursements should be made for each month of the budget year and used for determining the reserves or other disposition of excess receipts, for determining the use of lines of credit or for promoting financial stewardship to various segments in appropriate and timely ways.

The committee should not adjust the budget detail requested to reflect its appreciation of the vision or its beliefs about the adequacy of future receipts. Thoughts should be communicated through the pastor and executive pastor to those requesting budget approval. These thoughts then could be considered and the priorities and resource projections reworked to conform to the committee guidelines. The re-submission process should continue until an agreement is reached.

The committee then will want the budget broken down by cost account so the treasurer can report on-going results.

Great Returns From Scarce Resources
Do budgets sound like a lot of work? They are. The benefits include better ministries, a more capable staff and a focused and dynamic church--one that wisely uses scarce resources to add value to the lives of those whom God is bringing.

Maurice Painter, a management consultant with more than 24 years experience, helps pastors and staffs of large churches, Christian business owners and chief executives manage strategic challenges to God's vision for their organizations' growth. Painter has an undergraduate degree in business from the University of Maryland. He has worked for IBM and consulted with Ringling Bros. Circus, Thomas Nelson Publishers and has owned several small companies.
He can be reached at (615) 373-1147, fax (615) 377-9959 or by e-mail at MLPainter37024@worldnet.att.net.