Good reporting can give you such an important boost in your church’s financial management. But the challenges you may face when it comes to reporting could be:
- knowing what reports you should be looking at each period
- how you can understand the information in your reports
- what are the implications of your report figures for your church life
In this article we’ll briefly consider three key reporting areas to get you started.
We want your church to have meaningful information and insights you can use. A great and intuitive place to start is with you Statement of Financial Performance report (you may also refer to this as a Profit and Loss report or a Statement of Income and Expenses).
For most of us who have had to manage any sort of expenditure or budget (like a household budget) the concept in this report will be quite familiar.
This report has three basic sections:
- Income – operational funds that have come into your church
- Expenses – operational payments going out of your church
- Surplus / Deficit – the difference between income and expenses
This report answers the question: did we have enough income to cover our expenses during this period?
Some key things you may want to watch out for with this report:
- Ensuring all the income and expense transactions have been correctly allocated
- Reviewing that income items to be held in reserve are not skewing your understanding of your surplus
- Checking that the report is complete and covers a meaningful period of time
Your Statement of Financial Position (which you may also refer to as a Balance Sheet) shows you the big picture of your church’s financial situation at a point in time (rather than over a given period).
Again, there are three basic sections in this report, in broad terms:
- Assets – this is what your church “owns” – including cash assets like money in the bank, physical assets like property, and anticipated assets like money that is legally owed to
- Liabilities – this is what your church “owes” – things like bills yet to be paid, ATO obligations to be remitted, money collected on behalf of others, funds accrued for unpaid expenses or leave entitlements
- Equity – this is the difference between your assets and your liabilities
Church Statements of Financial Position (and Financial Performance) can become quite complex over time. You may have experienced this – where over the years more and more categories and accounts are added for various ministries and items, and these are not necessarily structured in a way that can be easily followed.
In such cases you may want to consider a simplification process, either in your Chart of Accounts itself, or perhaps in some grouped reporting that draws things together in a more helpful and understandable way for the team.
One of the most challenging aspects of managing your church finances is knowing your true financial position. In other words, understanding how much available funding you have. This is challenging because it’s not simply a matter of looking at your bank account.
In working out your savings and cash flow, you’ll also want to take into consideration keeping some of your funds in reserve for continuity (or emergencies), making assessment more complex.
Then add in unplanned factors that may affect you (like unbudgeted expenses or a drop in your congregational giving), and it can be increasingly difficult for you to have a clear picture of where your funding is at.
What’s likely to be helpful in this regard is a regular reporting process that:
- takes an accurate snapshot of your physical cash balances
- adjusts these for monies you have on hold for legal obligations
- further adjusts this for any funds you are reserving for particular ministry purposes
- projects out your anticipated changes in cash balances based on your budget forecast
- adjusts this forecast for known influences that may be affecting your budget
- builds in an allowance that considers your “buffer” comfort levels
- compares your resulting projected cash balances with your cash flow / savings goals
What does this all do? What this does for you is it provides you a “warning system” where you can regularly see not only how your church is performing against budget, but importantly:
- how much cash reserves you actually have; and
- when your cash reserves are likely to go below your comfort level (or run out completely)
Seeing these “red flags” ahead of time can greatly assist your whole finance and ministry team, giving you time to understand and respond appropriately.
Would you like to explore further topics related to church bookkeeping, church payroll and church financial management? eBook available now:
Your Handy Overview of Church Financial Management
(including your 80+ point Church Financial Management Overview Checklist)
This guide aims to provide a useful and helpful big-picture view – to assist you in further developing the financial function of your church in your context. Designed for church pastors, church ministry leaders, church officeholders, church admin teams, church treasurers and church members.
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