Administrative Basics: Understanding Financials

Administrative Basics: Understanding Financials

Content is written by Rev. Micah James,  CCA

According to the U.S. Security and Exchange Commission, “If you can read a nutrition label or a baseball box score, you can learn to read basic financial statements.”[1]

In every ministry leader’s tenure, there will be a moment where they will need to understand the financial position of the ministry. One of the things that I hear very often in my consulting work is, “they didn’t teach us that in seminary.” I don’t consider that a good excuse for not understanding the important information about the financial health of your congregation. So whether you know a little or a lot about how to read financial reports and statements, let’s make sure we have the basics covered.

What are you looking at? When attending a meeting, you may have multiple documents in front of you to receive information. It is important for you to first determine which type of document you are looking at while you are discussing the financial information.

Here are the most common types of documents that churches use:

  1. Balance Sheet – A balance sheet provides detailed information about assets, liabilities, and equity.[2] (Note: Churches may categorize savings accounts as equity in accounting programs, but they do not have profit in the same sense as businesses.)
    1. Assets are the income in various forms.
    2. Liabilities is the amount that the ministry owes to outside parties.
  • Equity is the amount that the ministry has on hand for itself. For some congregations, this number might be negative and it might indicate a number in which the congregation would owe itself in future years.
  1. Monthly Comparison Report – This report usually shows the YTD (Year To Date) budget compared to the YTD expenses along with the Monthly Budget compared to the Monthly expenses.
    1. This report often includes a percentage to show you how the budget line is tracking compared to the budget so that you can see if you are behind, in line, or ahead of projected budgeted expenditures.

If you can understand these basic terms and reports, you can better understand the financial health of your congregation. It will also allow you to speak with more confidence in your Finance meetings – the places, where at times, they don’t expect ministry leaders to speak with self-assurance.  Don’t shy away from these reports, embrace them as important implements in your toolbox of ministry.

(Reference: Some of the definitions used in this blog are edited from the SEC’s Beginner’s Guide to Financial Statements – )

[1] SEC’s Beginner’s Guide to Financial Statements
[2] SEC’s Beginner’s Guide to Financial Statements

Leave a Comment