As a church leader, you know how important it is for your church to effectively steward its resources. After all, you can only serve the community and engage your congregation if you have the necessary funding for your mission-driven activities!

Accounting best practices provide a framework for managing your church’s finances, and one critical element of accounting is creating an annual operating budget. This document is your church’s master financial plan, detailing all of the revenue you expect to generate and the expenses you’ll incur over one fiscal year.

To help you get started, we’ll walk through four strategies to guide your church’s budgeting process, including how to:

1. Set Clear Financial Goals
2. Consistently Categorize Expenses
3. Diversify Your Revenue Streams
4. Check in With Your Budget Regularly

Although your approach to budgeting will vary based on your church’s size and financial situation, these best practices provide a foundation for financial planning that keeps your mission at the forefront. Let’s dive in!

1. Set Clear Financial Goals

Your church likely sets many types of goals, and with good reason—goals are critical to any organization’s ability to grow and thrive. Before you dive into creating your church’s operating budget, make sure you have clear spending and revenue generation goals to inform your planning.

To make these goals as useful as possible, NXUnite recommends following the SMART method, meaning your goals should be:

• Specific
• Measurable
• Attainable
• Relevant
• Time-bound

Let’s say your church is setting a revenue generation goal for its year-end giving campaign. If you’re following the SMART method, you might aim “to raise $10,000 for our community outreach programs between GivingTuesday and December 31 of this coming year.”

This goal is specific about what it wants to achieve, includes a metric ($10,000) and a time frame (GivingTuesday to December 31), and is likely relevant to your mission and priorities since the revenue will fund community outreach programs. To determine if this goal is attainable, review your giving totals from previous year-end campaigns and evaluate your church’s current financial situation to determine realistic benchmarks for this year.

2. Consistently Categorize Expenses

When you begin the budgeting process, it’s often helpful to start with the expense side. You’ll likely be confident in some of your church’s expense projections—after all, you have to pay your bills and compensate your staff as promised—so you can begin there and then figure out how to cover each cost on the revenue side.

There are two main ways churches and other mission-driven organizations categorize their expenses in their budgets:

• Natural expense categorization is the more straightforward method—you simply organize costs based on the nature of payments made. For example, your natural expense categories might include staff salaries, utility bills, marketing material production, and children’s ministry supplies.
• Functional expense categorization helps you see how your expenditures contribute to your church’s mission—i.e., whether they’re used for programs, administrative needs, or the upfront costs associated with fundraising. Of the natural expense examples listed above, children’s ministry supplies are a program cost, staff salaries and utility bills are administrative costs, and marketing material production is usually considered a fundraising cost.

Many charitable organizations use functional expense categorization since it aligns with the reporting requirements laid out in IRS Form 990. However, since churches usually don’t have to file Form 990, you can choose whichever categorization method you find most useful as long as you keep your budgeting process consistent.

3. Diversify Your Revenue Streams

In the past, churches often relied on in-person direct contribution methods (like offering boxes or collection plates) as their primary funding source. However, many contemporary churches have seen the value in not only complimenting in-person giving with online options, but also incorporating other forms of revenue generation into their strategies. Having a variety of funding sources makes your church more financially stable—it’s easier to recover from unplanned situations, and it allows your congregation to contribute in ways that appeal to them.

Jitasa’s church accounting guide recommends a variety of revenue streams your church could use to diversify its funding, including:

• Fundraising events like walkathons, auctions, or parents’ night out activities.
• Foundation grants that align with your church’s mission and needs.
• Passive fundraising methods such as restaurant profit shares or online shopping fundraisers.
• In-kind donation drives to directly collect supplies for community outreach initiatives or ministry programming.
• Other non-cash gifts like stock donations, donor-advised funds, or cryptocurrency contributions.

In your church’s operating budget, categorize your revenue by source, and note when you expect to receive different types of funding as well as the projected amount. This will help ensure you have the resources you need for time-sensitive initiatives. For example, if you host a Vacation Bible School program every year in June, you might specify in your budget that you’ll host an in-kind donation drive in May to collect the necessary supplies for that activity with enough time to spare.

4. Check in With Your Budget Regularly

Although you’ll create your church’s operating budget from scratch once per year, budgeting shouldn’t be a one-and-done activity. At least once a month, sit down with your church’s leadership team and finance committee to review your budget, analyze your current financial situation in light of your projections, and make adjustments as necessary.

If your church works with an accountant, they can develop cash flow reports and budget vs. actual comparisons for you to reference during your check-ins. Cash flow reports break down how cash moves in and out of your organization so you know how much money you have on hand at any given time. Budget vs. actual comparisons outline your church’s actual transaction data side-by-side with your year-to-date budget projections for revenue and expenses to help you evaluate your progress toward your spending and revenue generation goals.

While effective operating budgets are essential for internal management and decision-making, they’re also useful externally. According to Ministry Brands’ 2024 State of Church Giving Report, 57% of churches that saw increased congregational giving in 2023 achieved those results in part by being transparent about their finances. Sharing your budget via your church’s annual report or during business meetings to build trust with your congregation about how you plan to use their contributions, which can lead to increased giving and greater engagement in your ministry.