September 2018 – Local Church Finance

Revenue Reporting: Set Up Your Revenue Correctly!

At Local Church Finance, we believe that donations should be recorded according to the conduits in which you are receiving your donations as opposed to other methods. So what do we mean by conduits? By conduit, we are referring to the means in which you are deriving your donations. It is the means in which people are giving that you need to track.

Let us explain more about these conduits:

Are you deriving most of your donations by passing the offering plate on Sunday? Or do most of your donors simply mail in a monthly pledge card slip that you have provided them?

To what extent is your online giving growing? FYI, your online giving needs to be growing because the younger generations don’t write manual checks. Let me say it more strongly: Generation X and Millennials are not writing checks!

Here’s an example of how we recommend classifying your revenue:

Of course the illustration above does not take into account the recording and classification of Designated Revenue accounts. At Local Church Finance, we recommend having no more than two designated revenue accounts. If you have more than two designated revenue accounts, then we can help you consolidate them. We can also help you communicate to your congregation in ways that help your donors see that you are committed to certain projects without you having to establish designated accounts for those particular projects.

What about revenues derived from books, the café and events? These revenues should always be recorded below your operating expenses for two reasons: 1) these revenues do not derive from your primary source of business and 2) these revenues are not tax deductible.

Ideally, at the end of each year, you want your total donation revenue from your account database to exactly reconcile with your total donation revenue from your church management software. Why? Because you will be sending out year-end tax contribution letters and you need to provide accurate donation records to your donors.

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Your church needs a CFO on a part-time basis. Let the Local Church Finance team help you classify and manage your revenue streams.

Why Fewer Designated Funds Is Better

Less Really is More

One of our clients approached us with 27 designated fund accounts. That’s essentially 27 unique businesses within a church because revenues and expenses must be maintained within each designated fund.

It is realistically impossible to manage and maintain 27 separate designated fund accounts. The bookkeeping work to do so is prohibitively too onerous and the reporting of the funds is, frankly, too complex.

So what’s the limit of the number of funds a church should have? At Local Church Finance, we believe a church should have no more than two designated funds, along with what is referred to as the General Fund or Unrestricted Operating Account. Most often, these two designated funds are for capital projects and missions.

At Local Church Finance, we like to record donations according to the conduits in which you are receiving your donations. By conduit, we are referring to the three means in which you are deriving your donations: a) worship service offering, b) electronic giving and, c) mail-in giving. We often subdivide electronic giving into: a) online giving, b) telephone app giving and perhaps, c) kiosks giving.

Below, is an illustration of what the revenue report looks like when combing the revenue classifications with the two designated fund accounts:

	General Fund	Designated Fund 1	Designated Fund 2
Worship Service Giving	X	X	X
Electronic Giving- Online	X	X	X
Electronic Giving- Telephone App	X	X	X
Mail- In Giving	X	X	X
Total	XX	XX	XX

When counting the number of single X’s above (in blue), you will see that there are 12 unique classifications, or buckets, in which to record donations. You really don’t want more than 12 buckets when having to choose where to record donations.

Can you imagine having 27 fund accounts in the example above? That would result in 108 buckets to choose from when recording donations!

So when it comes to designated fund and designated fund accounting, the adage that less is more certainly rings true.

Your church needs a CFO on part-time basis. Let the Local Church Finance team help you classify and manage your general fund and designated fund accounts.

Should You Post Church Financial Info on Your Church’s Website?

Our answer at Local Church Finance is a resounding…YES!

Here’s what we’ve discovered:

Members appreciate open financial transparency.
However, members seldom, if ever, visit the financial disclosure webpage!
Nevertheless, members appreciate knowing that the financial information is there for them to review.

Here’s what we recommend posting on your website:

Year-to-Date Revenue
Year-to-Date Expenses
Budget to Actual

Here’s how we recommend presenting the financial information:

Happy Church
Financial Operations
January 1, 20XX to May 30, 20XX

	Actual	Budget	Over (Under)
Revenue	$125,000	$140,000	($15,000)
Expense	$115,000	$120,000	$5,000
Net Income	$10,000	$20,000	($10,000)

Final thoughts:

The broader your audience, the less financial information you want to provide. That is because the greater your audience, the more questions will arise. So keep your information simple and provide your greater audience with only a 50,000 foot view of your financial condition.

Posting financial information during difficult financial times can be a good thing for your church. Church leaders can simply ask the congregation and/or individuals to visit the financial website page to see how and where the church is struggling financially.

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Your church needs a CFO on a part-time basis. Let the Local Church Finance team equip you in
creating and presenting your financial statements on your website.

4 Signs That Your Bookkeeping Has Run Amok

Is Your Church Exhibiting Any of these Symptoms?

Many of our clients approach us when they realize that their church’s financial recordkeeping (or lack thereof) is in a mess. That’s ok, we’ve experienced it all and we embrace the challenge. Our mission is financial operating excellence and so we want all churches everywhere to operate smoothly. We love to celebrate when we have “righted the ship” for our clients.

We rejoice as our clients experience the new found freedom of functional operations, clarity in reporting, and clear direction regarding all things.

Nevertheless, it would be far better for our prospects and clients if we could communicate, as early as possible, the telltale signs that the financial operations are in trouble.

In talking with prospects, we have uncovered these common telltale signs that their bookkeeping has, indeed, run amok:

1) Financial Reports are Not Available: Earlier this year, I was meeting with the stewardship team of a church prospect (which later became a client) and I asked the team about the quality of the financial reports they were receiving. At first, nobody answered the question and finally a committee member chuckled and said: we don’t really receive any reports. Ouch! Result: The stewardship is limited to operating on intuition only, with no hard and fast financial numbers to guide them.

2) Financial Reports are Outdated: In another prospect meeting, I asked the same question regarding the quality of financial reports. Again, a delayed response and then a committee member said: our reports are always about three months behind the current time. Ouch again! Result: Delayed financial reports are a telltale sign that the financial operations are being run on a reactive, rather than proactive, basis. The validity of these outdated financial reports are suspect as well.

3) Financial Reports are Too Lengthy: On a number of occasions, prospects will hand me a Profit & Loss Statement that is lengthy – four or more pages long. I’ve actually been handed a P&L Statement that was twenty pages long! Result: Lengthy statements mean that the bookkeeper or bookkeepers have no financial oversight. Each time an unrecognized transaction comes to the bookkeeper, he / she is likely creating a new income or expense account rather than deciding where to record the transaction in one of the existing accounts. At this point, nobody is reading the lengthy statements because there is too much information to possibly understand.

4) The Numbers are Obviously Not Adding Up: I was visiting with one client and found myself in awe at the beauty and size of their facility. It was readily apparent that their facility cost somewhere in the $10 million plus range. Soon after the visit, I received their balance sheet and saw that only $2 million was recorded to Land, Building & Equipment! Immediately, I knew that our team was going to have quite a lot of work to do in order to get their financial statements and operations corrected. Long story short: We accomplished the task and the church now has new found clarity.

At MinistryCFO, we move churches away from complexity toward simplicity. Without simplicity, the leaders of your church are going to ignore your financial statements, and frankly, you and your staff will ignore your financial reports, as well. Keep in mind that complexity results in confusion, while simplicity brings clarity.

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