American churches tend to operate with the mindset that budgeting is a formal, annual process that must be performed in a manner and time frame that aligns with the church’s fiscal year. In reality, there is no legal requirement for such a formal or annual process.
Caution. Consideration must be made, however, of an individual church’s governing documents (articles of incorporation, constitution, bylaws, etc.) and polity, including denominational books of order or other similar authoritative sources that may impose specific, formal, annual budgeting requirements.
Fluid, dynamic alternatives
With improved technologies and availability of more timely financial information on a regular basis, churches are able to monitor and forecast activities and costs on a more dynamic basis than has been the case in the past. As a result, some churches have adopted alternatives to (either as a supplement or in lieu of) the formal, annual budgeting process that are more fluid and dynamic. Such an approach allows church leaders to adapt on an ongoing basis to changing expectations regarding revenues and other dynamic developments.
A more dynamic budgeting or forecasting process is likely essential for a church undergoing rapid change—particularly a church experiencing rapid growth or a church that has experienced a sudden and unexpected challenge or crisis. Whether a church chooses to abandon formal, annual budgeting, or not, is a decision to be made by its governing body and possibly (depending on the church’s governance model) its membership.
The importance of a policy
A commonly used alternative to the formal, annual budgeting process is some form of rolling forecast or rolling budget. For example, a church may adopt a rolling forecast looking forward to the next 12 months and update the forecast each quarter. For obvious reasons, utilizing a rolling forecast or rolling budget in which forecasted or budgeted amounts change frequently presents challenges for a church that wishes to use its budget as an expense control mechanism. Accordingly, it may be wise for a church that utilizes a rolling forecast or rolling budget model to officially adopt policies or constraints on spending. For example, a church may adopt a resolution providing that the financial management of the church shall result in a minimum cash flow surplus for each calendar quarter or for a calendar year. Such a resolution may also adopt targeted benchmarks for the church to reach each quarter, or year, as progress toward its longer-term targets for improved liquidity and financial position.
A tool for internal control
If a rolling forecast or rolling budget model is used, it is still important for the church to utilize its forecast or budget as a tool for effective stewardship and internal control. Comparing actual results with budgeted or forecasted amounts for the applicable periods of time is a particularly effective financial oversight exercise and an important element of sound internal control. The fact that the church may not utilize a formal, annual budgeting process is not a basis for abandoning the process of comparing actual results with forecasted or budgeted amounts.