Financial Management

A church or non-profit organization is an ongoing entity that does not run itself. Good management and financial controls are essential for the success of the organization. Good financial management is not guesswork and to do it properly you must have the tools to work with. You need current, accurate and well organized accounting records, a well thought out budget and regular financial statements. These tools may not provide you all the answers to your financial concerns but they will help you make sound decisions regarding your organization.

A sound financial management program will have at least three components, namely; accounting, budgeting and financial reporting. A brief description of each follows:

Accounting
Preparing and maintaining adequate financial records is critical to a church or religious institution success and financial stability. Accurate accounting records are essential for business planning and useful tools for management in making informed decisions. They can be simple or complex depending on the size of the organization. There are many software systems available for maintaining accounting records. Whatever accounting system you use for your organization it should be able to provide:

• Detailed operating statements
• A comparison of actual current results to current budgets and prior periods
• Financial statements suitable for use by management and creditors
• Information for tax returns and reports to regulatory agencies
• Sufficient controls to protect assets and detect errors

Budgeting
A budget is a comprehensive financial plan setting forth the expected route for achieving the financial and operational goals of an organization. By its very nature, a budget is a series of future estimates that are expressed in financial terms and act as a standard against which actual financial performance is measured. Budgeting plays a key role in a business’ planning process because:

• A budget formalizes planning
• A budget helps a church or business meet its objectives
• A budget helps a the pastor and officers plan for the future
• A budget is a basis for control
• A budget allocates and reallocates resources
• A budget assists in communication and coordination with the members
• A budget enhances managerial perspectives
• A budget provides performance evaluation
• A budget is prepared before the beginning of the organization’s fiscal year and is used during the year to compare and measure actual financial performance.

Financial reporting
Financial reporting is the end product of the financial management process. It summarizes all the financial transactions of the organization. Financial reporting should be done on a consistent basis throughout the year and is the yard stick by which an organization's financial conditions are measured at a specific time during the year. Financial reporting includes, but is not necessarily limited to, an income statement, balance sheet and cash flow statement.

• Income Statement--Otherwise known as the profit and loss statement, it is a summary of a church’s profit or loss during any one given period. It records all revenues the church earned and all the money spent for the given period.
• Balance Sheet-- A snapshot of a church’s financial standing at a given time. The balance sheet contains the three primary elements of a business enterprise; what it owns, (assets), what it owes, (liabilities) and stockholders’ equity or net worth.
• Cash Flow-- A financial reports that shows incoming and outgoing money during a particular period.

The effectiveness of planning and decision making in an organization depends largely on the ability of the financial reports to help people understand and make decisions. Financial reports are helpful in managing the church’s finances, but they are absolutely essential if the church wish to secure financing from a major financial institution. Therefore, the reports should be accurate, simple, clear and timely.

The Diversa Group is committed to sound financial planning and management and our consultants have the resources and expertise to assist you in:

• Reviewing and assessing your current account system to determine if it meet your needs
• Selecting an accounting system that is right for you
• Setting up your accounting system
• Setting up your payroll system
• Training your staff in the use of the accounting and payroll system
• Developing financial management controls
• Preparing and monitoring your budget
• Preparing monthly financial reports.
• Teaching the pastor, officers and staff how to read financial statements

Call us at today at 1-877-254-0717 or email us at consulting@diversagroup.com and be on your way to developing and implementing sound financial management practices for you church.