Mr. Jeff Beaumont is a CPA working for a firm that focuses on serving the nonprofit community. His opinions are his own and do not reflect the opinions or positions of his firm in any way. Because he speaks for himself, I won’t identify him or his firm in any more detail. He doesn’t speak for me either.
He has about seven years experience as an auditor working on the issues discussed on this blog. This is the second in a series.
By Jeff Beaumont, CPA
Part 2 – Philosophy and foundation discussion
Introduction and encouragement to pastors is here.
We were forecasting revenue for the next year and knew we needed to be accurate. We needed to do our best to discern changes (be that attendance, economic changes, etc.) in the church that will affect revenue.
After the first year or two of using a flat percentage increase by looking at the past few years and trying to make a determination for the entire year’s revenue in under an hour (yes, that happens frequently in churches!), we realized our mistake to make it such a hasty and cursory decision-making process.
We then then took a different road. One that required more work but—hopefully—would be worth it in the end.
In short, the way we went was to monitor the weekly trends of A) revenue, B) attendance, and C) giving units (a giving unit is a person, couple, or family that make one donation, such as a check from Mr. & Mrs. Wallace). Trying to analyze by monthly patterns is less accurate as some months have 4 or 5 weeks, among other things.
Then, we compared on a weekly basis how these three interacted with each other. By doing this, we could make notes about how much a rise or fall in attendance did or did not affect offerings. There are the major trends, such as the well-known donations in December and summers also tend to be low because people are on vacation.
Lastly, I know many churches do not tally attendance, so in that case I would suggest using only giving units.
The terminology for what we created is called a Financial Model.
It is a fancy way of saying we looked at the data of the past, broke some figures down, made some educated guesses and estimates of the future, and had a grand ol’ time on a spreadsheet to arrive at a possible scenario of the next year.
This takes into consideration certain trends and assumptions, for example, each attendee gives $40 a week and there will be 100 more attendees during the year. This we can use to create our model and understand the undergirding beliefs and principles of the calculation and have a more precise figure at the end of the day.
The goal, then, is that our estimate for next year’s offerings will be based on a semi-rational, mostly logical manner.
Yes, God still does not fit in spreadsheets and he will cause changes, so if we believe we are called to take on some additional project/goal, then that’s when we need to seek the Lord for guidance rather than a spreadsheet. But at least for general, operational ministry, I hope this serves as a great help.
Next post discusses the calculations.
What forecasting model do you use?