Jennifer Neal wanted to be successful—as a woman, as a mother, and as a financial controller at a multibillion-dollar company. “I was desperately trying to make my mark and have it all,” she said.
What Neal didn’t intend was for Jesus, as she put it, “almost taking a two-by-four to my head.”
But in 2012, when her church began looking for a director of finance, nine people emailed and encouraged her to go for it. Her career ambitions certainly didn’t include a ministry position. However, she couldn’t help but feel “the Lord was leading me to at least apply.”
After much time spent in prayer, and much deliberation over the benefits of a more stable schedule as she raised her three children, she embraced her new calling with the College Park Church in Indianapolis.
Although Neal took a significant pay cut, she quickly found fulfillment using her gifts to further God’s kingdom. “It just gives me a great deal of satisfaction in my position,” she said.
Even so, Neal readily admits that the differences between a church and a business is overwhelming at times and the learning curve can be high.
We interviewed editorial advisors and church financial leaders about making the switch from a for-profit business to a nonprofit ministry. Their insights helped develop five tips to keep in mind when navigating the complexities of church finance and tax issues:
1. Finances in the church are very different from a for-profit business.
The church treasurer role requires changing from a profit-oriented business management mindset to a focus on serving others and working with ordained ministers, said Dan Busby, president emeritus of the Evangelical Council for Financial Accountability.
“That transition in culture,” he said, “is often underestimated.”
Often those making the transition come into the church expecting it to operate as smoothly as their former workplace, said Elaine Sommerville, a CPA who works on compliance aspects of nonprofit organizations. “A lot of times when we see people making this transition, they’re coming out of higher-level positions in some larger companies, and they’re used to a well-defined structure of operation,” she said.
In Neal’s case, she learned to extend “extravagant grace” to her fellow ministers whose primary focus isn’t financial matters.
“You have to be a lot more understanding, communicate a lot more, realize that the person that didn’t get you the expense report on time was up late dealing with some significant crisis in a person’s life,” Neal explained. “And at the end of the day, it was way more important and valuable that he was there than doing my expense report.”
2. Tax-exempt rules are complicated.
The unique tax and regulatory climate for churches and ministries requires getting up to speed in a hurry, said Michael Batts, managing partner of an Orlando-based CPA firm serving nonprofits, ministries, and churches. Financial staff need to learn about specific differences between business structures and church structures, such as “tax law structure, employment law structure, employee benefits law structure, etc.,” Batts said.
There is also a big difference in the risk matrix, said Frank Sommerville, a CPA and attorney. In the for-profit world, if a company pays somebody too much, a disallowed deduction may occur and result in a small penalty, he said. In a church setting, a seemingly small error can result in a big penalty and even put the church’s tax-exempt status at risk, he noted.
“When you get into a nonprofit world, consequences are much more serious,” he stressed. “[Financial staff] have to be educated on those consequences.”
“Most people think, ‘Well, we’re nonprofit. We don’t pay taxes. What’s the big deal? Nothing applies to us.’ And the truth is, the nonprofit industry is highly regulated in a lot of areas” and churches and ministers face numerous tax-related requirements, added Elaine Sommerville.
3. Charitable contributions are a complicated source of revenue.
In the business world, there’s one big pot of money to be used how the company sees fit.
In the church world, there can be a number of different pots with specific purposes—and that complicates how and where it can be spent, the experts said.
“Businesses primarily receive revenue from sales and fees, whereas churches primarily receive revenues from charitable contributions,” Busby said. “So the focus of financial administration turns to quality gift administration with churches instead of the for-profit world focusing on sales, cost of sales, and margins.”
Under nonprofit rules, the accounting and financial reporting framework must include both nonrestricted and restricted funds.
“An unrestricted contribution means the donor has not placed any restriction on how those funds should be spent,” Frank Sommerville explained. “A restricted fund is just how it sounds—the donor has restricted that money to be used for a specific project or a specific purpose. There’s not really a comparable concept in the for-profit world.”
For example, a restricted fund might be as broad as money given for a building fund or as narrow as a check earmarked specifically to buy a piano.
“So you have to separately create an account for these restricted gifts and make sure that you flag the restriction on the front end receiving it,” Frank Sommerville said. “And you set up the accounting side on the other end to see that the church has complied with the law with those restrictions when it spends the money.”
4. Tracking and documenting expenses is crucial.
Church finance demands tracking—and documenting—every expense. It protects the church’s reputation and it ensures the church complies with the law.
“We’re talking about God’s resources that [people] give to the church to be used for kingdom purposes,” Busby said. “So that would require us to step up to a higher level of integrity with respect to how those funds are handled.”
Tim Samuel, chief financial officer for Bridgeway Community Church in Columbia, Maryland, stresses to pastors that financial documentation is not a matter of lacking trust.
“I tell that to every new [pastor who] comes in because the pastor is always going to think, What, you don’t trust me?” said Samuel, who made the transition from a for-profit CPA firm in 2007. “This has nothing to do with trust. This has to do with [being able to] open up our books and tell myself and the world, ‘Hey, we’ve got these internal controls in place.'”
He recommends a patient-but-firm approach with fellow staff members for whom such controls may be a new and challenging concept.
“Start requiring documentation or don’t write the check,” he said. “Every check should have some kind of documentation. I track the money the whole way through.”
Professionals transitioning from the business world may be surprised by a lack of internal controls in many churches, Elaine Sommerville said.
“It’s not unusual to find one person doing everything, from processing donations to writing checks to reconciling the bank account,” she said. “The church has a tendency to think the fewer people you have involved, the better. And internal control works off of the [idea that] the more you split up accounting duties, the better it is.”
5. Education and training are essential.
The need for training when moving to a non-profit is immense, Batts said.
From tax laws to accounting rules to the unique governance structure of particular organizations, he said, “a measure of diligence and intentionality is required to get up to speed in these areas to an appropriate level.”
“It won’t happen casually,” Batts said. “Getting briefings from professional advisers, reading internal documents, and attending relevant conferences and training seminars are typically the most effective ways to get up to speed quickly.”
Neal echoed the recommendations for ongoing education. She said she regularly reads articles and resources from organizations she trusts. Doing so has helped her redefine success and see how her knowledge and skills can set up her church for success.
“I really wanted to be ‘successful’ in the world’s eyes,” Neal said of her past outlook. “But I’ve really been able to find a passion in helping further the kingdom of Christ.
“I know I’m not the frontline pastor preaching on the stage every Sunday,” she added. “But I’m really finding the right niche and [I’m] passionate about doing that so I can equip others … and [that] really just changed my attitude.”