Three Ways to Deal with a Difficult Budget

An updated economic survey from The National Association of Church Business Administration (NACBA) has found even more churches struggling in the economic downturn. At the end of 2008, only 14 percent of survey respondents said their church was definitely having economy-related financial difficulties. In the last quarter of 2009, that number had risen to almost 35 percent - or 1 in 3 churches!

In response to the challenges, 47 percent said their church had frozen or reduced staff benefits (up from 18 percent in 2008). 20 percent had laid off staff, and 26 percent had postponed a major capital project.

But are staff cuts or capital project postponements the best ways to deal with difficult financial times and a shrinking budget? How else can churches survive the recession? Consider these three options:

#1: Slash the budget strategically.

Funding programs and ministries that have little, if anything, to do with a church's primary mission and vision can unnecessarily strain both financial resources and human resources. It can also lead to a decline as congregants realize that rather than paying for progress in the church’s mission to make disciples, they are funding an organization.

Steve Stroope and Dr. Aubrey Malphurs stress that churchesmust identify their core values, their mission, a clear vision and a strategy for accomplishing that vision before they approach the budgeting process. "Without a clear vision, values, and a strategy, you’ll not be able to develop a strategic budget," Malphurs and Stroope write in their book "Money Matters in Church."

They also caution churches against simply increasing the budget, despite a downturn in giving, under the mistaken assumption that people will rise to the occasion and make up for the previous deficit with newfound generosity. In fact, rather than relying on percentage increases in giving to set yearly budgets, Stroope and Malphurs recommend using the pattern of numerical increase only as a more conservative tool. For example, an annual budget of $200,000 that winds up with a $30,000 surplus would be used to increase the budget by $30,000, but only in the following year.

#2: Create an optimal staff size.

The largest single budget item for any church is its staff. Paid ministry personnel eat up the largest share of a church’s funds. On average, salaries and wages comprise 38 percent of church operating budgets. When asked what options they have considered to reduce expenses this year, 20 percent of churches say they have implemented salary freezes, followed by hiring freezes, pay cuts and layoffs.

Larger churches naturally require larger staffs. According to Tim Keller, senior pastor of Redeemer Presbyterian Church in New York, NY, "This creates a great burden on large churches, because unless you have a wealthy congregation, you can’t add staff as fast as you need to." The answer, he says, lies in a competent volunteer recruitment. A large and growing church must learn to depend more on lay ministry.

This means more decision making is left up to the staff and more basic pastoral ministry, as well as shepherding, teaching, and discipling is in the hands of volunteers. "In summary, in small churches policy is decided by many, and ministry is done by a few. In large churches ministry is done by many, and policy is decided by a few," Keller writes.

#3: Trim the fat.

A lot of large church budget items can be cut before leaders are forced to cut staff. "Bonuses, pay increases, ministry budgets and flexible expenses should be cut first," Eugene Mason writes. "Capital spending should be reduced. If the budget adjustments must result in loss of personnel, it’s crazy to leave in money for new Christmas decorations at the expense of a person’s livelihood. Personnel should be the last cut on the list, because when you make those cuts, they’re going to leave wounds."

Mason also mentions one budget item that should not be cut—especially in a time of financial struggle for more people than usual—the benevolence fund. Instead, he says churches should encourage more giving in this specific area. "Consider special offerings with the proceeds going to families in need in the church and surrounding communities," he writes.

These ideas, while focused on churches, are right for all mission-driven organizations. We hope these principles will be helpful as your leadership team faces challenging times and challenging decisions. If we can be of service, please call!