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Mid-Year Review of Church Budget

Whether your church’s budget is based on the calendar year (January – December), or a different starting point based on the fiscal year, it is a good practice to re-visit the budget at some point during the year to see if projections are close to actual numbers.

In light of the pandemic and the economic uncertainty of the past year and a half, churches have found budgeting to be more challenging than in other years. During the past budgeting cycle, churches had to predict how donations would hold up during the current budget year. Would job losses and other economic challenges cause giving to decrease? Would stimulus payments and other tax breaks cause giving to remain steady or even increase?  Further, during the last budgeting cycle churches had to make predictions about expenses based on many unknowns. How long would worship services and other programs need to be conducted virtually, and would this allow for savings in some program budgeted expenses? Would Paycheck Protection Program loans be fully forgiven, or would some proceeds need to be repaid by the church? Would benevolence needs increase dramatically?

For many churches, the current budget was based on more speculation that in more “normal” years. Consequently, it is more important than usual to pause in the midst of the fiscal year and examine how the budget is holding up in light of actual income and actual expenses.

Upon such review, the church leaders may determine that any actual deviations from projections are working themselves out. For example, income may be running 20% lower than original projections, but because of programming changes expenses are also running around 20% lower than budgeted.  Those managing the monthly finances have ensured that income and expenses are matching up. The bottom line may be working out just fine in such a scenario, and the church leaders may determine that no mid-year budget alterations are required.

However, a mid-year budget review may reveal that unforeseen circumstances have caused significant deviation from the original budget projections. For example, income may be lagging dramatically behind, while expenses are only slightly lower than projected, causing a growing deficit.  In such a scenario, church leaders may need to act to modify the budget for the remainder of the church to lower expenses. Perhaps additional funds will need to be raised to end the year in a strong position.

On a more positive note, a mid-year budget review may reveal that giving has remained as strong, or even stronger, than projected, and that expenses have come in under budget. A mid-year budget review may empower leaders to take bold action to redirect funds toward ministry areas that can help move the church forward, and meet real needs.

Looking to the future, a church may also want to enact policies that trigger automatic budget reviews if income lags a certain percentage behind budget for set duration of time, or if expenses exceed those budgeted by certain amounts.

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Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.

This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.

For more information or if you need additional assistance, please use the contact information below.

Clergy Financial Resources
11214 86th Avenue N.
Maple Grove, MN 55369

Tel: (888) 421-0101 
Fax: (888) 876-5101
Email: clientservices@clergyfinancial.com

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