The Three Pieces to the Church Finance Puzzle

Bookkeeping

This is the most underappreciated aspect of the financial picture across both for-profit and non-profit organizations. Bookkeeping is mostly comprised of data-entry and therefore has a low value placed on it. However it is the foundation of the puzzle, the outer edges if you will.

Accounting

This is the technical aspect of the picture. Since churches do not have to pay taxes on their “income” the thought of applying proper accounting to their finances usually does not come up. Yet, the IRS still has laws that churches need to follow. Church payroll is very unique and not done properly can cause headaches and hardships. Proper separation of duties and internal control procedures can prevent sizeable fraud that unfortunately has become more common within churches.

Analysis

Having the right foundational bookkeeping and the proper accounting oversight does not mean much if the data is not able to be interpreted to provide actionable insights. Financial analysis is not usually something thought of in the church community. It sounds like something advanced and strictly for for-profit businesses. However, proper analysis allows churches to make sound financial decisions. Whether that is planning for new staff, a new building, or new ministry undertakings.

Where do most churches lack?

In my time working with many different churches I have not come across any that have all three pieces. If their finances are usually handled in house, unfortunately, all 3 aspects are usually missing. If the finances are outsourced then most of the time the bookkeeping and accounting is better but there is usually a lack of clearly communicating the financial state to church leadership. Also, if the outsourced option does not focus on churches then the books are more tailored to for-profit books rather than a church’s.

Why all three are important?

To relate it to another industry, if an outside firm is helping a business with SEO/digital marketing for their company and sets everything up for a successful digital marketing campaign and gives it to the business without any guidance on how to implement it then it will ultimately not be successful. That is even assuming the foundational and technical aspects (i.e. the bookkeeping and accounting) are good. With church finances all three work hand in hand. Solid bookkeeping and accounting provide the framework for clear analysis to be communicated for actionable insights.