- - And the Lord direct your heart in the love of God as you faithfully serve Him - -

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 TO:  Interested Onliners or Ministries                                                                                             FROM: Jim Bramer, Retired CPA-Auditor
                                                                                                                                      FILE:  0204-04/jrnl
   
 RE: J I Ms  J R N L  for the month of April 2004                                                                                                        Originated:  April 2004  

PURPOSE:  To help your  Ministry Finance Team  be more effective:

    Within context of  0910-03  and even  0909-03,  and the links therein on this topic,  may I remind you of at least the following Budget "TRUISMS", especially in a Church setting.

    a> The budget is supposed to be a "personification of the known Ministry's plans as converted to dollars." Plans and needs do not remain the same for an entire 12 months. Ministry department managers sometimes "pad" their Annual Budget and get approval for more than they really need. Again, the best approach is to carefully plan what you want to accomplish during the year and then convert these plans to dollars.

    b> The Church congregation should annually vote to authorize and have a proprietory interest in such spending plans.

    c> But the Church Board of Leadership should have some non-congregational means of expense authorization that facilitates unplanned ministry needs during the year. Please click here for portion of suggested Finance Policy manual where as much as 5% of Annual Budget can be authorized and spent by the Board during the year, etc.

    d> Approved budget items expire at the end of each fiscal year and any unused portions are NOT carried over to next year. Ministry department managers often ask toward the end of the year if there is unspent money left in their Annual Budget. Or they have the mind-set/philosophy of: "I better spend any unused portion since it is approved - even though it is not that badly needed"; or " Whewwww, I don't want to lose it so I better find some way to spend it". Incurring unnecessary expenses are NOT good resource stewardship. 

    e> All operating costs flow via this updated GPFund Annual Budget when the income permits. Do NOT look to Board discretionary SPFunds for changed operational plans. Draw on SPFunds such as Reserves or SetASides resources only for emergency/contingencies or 'out of the ordinary' matters.

    f> Named SPFunds seldom need "budgets per se" because you can only spend what is in that fund.

    It is estimated that nearly 90 percent of church building programs are funded through debt service. A few Christian financial counselors are conducting seminars in which they advocate the cash basis for all church property development as the Biblical plan. Are any of them planting new churches? Certainly the concept of borrowing money has been abused. Many have become slaves to debt rather than making debt serve them. I believe the church project can be partially funded through debt service without violating Biblical principals governing interest and payment of debt.
    Debt should never replace stewardship. Challenge your people with the Word of God to an enlarged faith that would encourage giving beyond the visible assets of the moment in trust agreements with God. Accept the possibility with God of sufficient cash gifts for the project. Raise all you can.
    However, waiting for cash to build in some instances is costly. You may miss the opportunity to purchase a suitable building site when it is available. Inflation could increase building costs more rapidly than your fund is increasing. Capacity crowds in the present facility may eliminate your ability to grow. Occupying a new facility may allow you to reach more people for Christ who can also give to eliminate the debt that made it possible to reach them.
    Conservative guidelines of debt, such as the following, need to be followed with professional documentation to avoid pitfalls and legal entanglements:

1>  Maximum debt load should not exceed three times the church's annual income.
2>  Avoid commitments with prepayment penalties, so that the loan may be prepaid as the Lord provides the funds through His people.
3>  Debt service (amortization) should not exceed one third of the church's budget. Debt service plus giving to missions should not exceed one half of the church budget, leaving half of the budget to achieve the program of the church discipling people.
4>  Maintain a 50 percent net equity on capital assets when the project is complete. (The true value of the property should always be worth twice as much as you owe.
5>  Avoid balloon payments on debt during the continuing period of debt service. When necessary, the balloon could be placed at the end of the amortization period with potential for refinancing if the balloon has not been prepaid. No balloon is the wisest way and least costly.
6>  Never use negative amortization, adding unpaid interest to the principle you could owe more on the property than it is worth.
7>  Don't let gifts designated specifically for added features of a building jeopardize your ability to complete the basic building. Avoid risking the present control or future plans of the church with memorial plaques that maintain individual control of the item.
8>  Beware of combinations of debt that make debt service a burden with several payments due at the same time.
9>  Provide the possibility for maturing the debt service when the building is at capacity. That's ten years, if you provided the potential to double your capacity before building and have a net growth of 7 percent each year.
10>  Seek trustworthy, professional church funding counsel. Don't make blind commitments.

Optional Operating Budget Method (3).

    Personally, I am becoming more and more impressed with a slightly unusual Operating Budget Method whereby the Ministry department can only spend the GPFund discretionary income that has been assigned to it.  Please go to QBooks Method Three  for more details.  Remember, this has northing to do with managing restricted or  SPFunds.  The overall idea is that your GPFund Operations is divided up into Departmental Spending Groups.  Upon the receipt of such money it is immediately assigned first to any Operating Deficit and then to the applicable Group by order of spending priority.  Spenders get a copy of a weekly report (that looks something like the following) and they know the amount of money they can spend right now for their part of the Ministry.  Let me know if anyone would like a tutorial, similar to 0079, that would walk you through using QBooks and this Operating Budget Method.

QB Acct Types	Assets:
Bank	Checking- Savings		$ 16,787
Fixed Assets	Land Bldg & Equipment
	Total Spendable Assets			$16,787
	Liabilities:
Acct Pay	Payables			$  1,689
	Fund Balances - Net Assets:
	SPFunds
Equity	Approved Donor Restrictions	$      700
Equity	Building Fund	$    4,000
Equity	SetASide for Named Purpose	$  15,774
	Total SPFund		$ 20,474
	GPFunds
Equity	(Deficit) from last year	$   (6,362)
	Available for this Years Operations:
Equity	Church Staff Costs	$      562
Equity	Missions Costs	$      234
Equity	Mortgage & Facility Costs	$        56
Equity	Program #1 Costs	$        34
Equity	Program #2 Costs	$      100
	Total GPFund (Deficit)		$ (5,376)
	Total Fund Bal			$15,098
	Total Liab and Fund Bal			$16,787
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