Choosing a Financial Reporting Tool
By Rev. Micah James, CCA
Social Enterprise Resource Bank - January 10, 2017
Finances – an unavoidable part of the stewardship and administration. We need to be able to communicate them in a transparent and accessible way to our communities. For years, congregations and nonprofits have been using many tools to communicate the resources gathered for and used in ministry and service. Before we describe how to read these tools, let’s take a moment to compare tools and ponder which tools are best for your community.
1. Financial Position (Balance Sheet) - “The statement of financial position is another name for the balance sheet. It is one of the main financial statements and it reports an entity’s assets, liabilities, and the difference in their totals. The amounts reported on the statement of financial position are the amounts as of the final moment of an accounting period. The structure of the statement of financial position is similar to the basic accounting equation. A nonprofit organization’s format will be: Assets = Liabilities + Net Assets.” (AccountCoach.com)
2. Narrative Budget - “Rather than simply presenting a spreadsheet style budget that lists columns and columns of numbers under the heading of different departments such as “Property,” “Personnel,” “Outreach,” and “Education”; the narrative budget (as the name implies) tells a story. The story is the organization’s story of mission and service and how the varying components of the budget contribute to that specific community being able to live into its God given vision. It connects every aspect of the budget to ministry and service. It links every dollar to mission and every gift to faithful expression of the joy of giving and generosity of our God. Narrative budgets inspire, interpret, encourage, challenge, and inform donors about why their gift matters.” (Center for Faith and Giving)
3. Income vs. Expenses (Revenue vs. Expenses) - “The Revenue and Expense Statement Summary report, also known as the BAE (Budget, Actual, Encumbrance) report, shows the balances in different account ranges. In the report, the accounts provide drill through capability so that you can see the specific transactions creating each balance.” (CUSYS.edu)
4. Cost and Impact of Ministry - Instead of looking at the big picture, this (much like narrative budgeting) allows leaders to communicate cost and impact. This would be similar to a project outcome report. It would include date of event/ministry, itemized cost, participation, measurable impacts, and fundraising report. This is the most informal of the reports, but useful for understanding the specifics of how ministry dollars translate to impact for a particular effort.
To choose the right tool for your community, you need to consider the following:
- Financial Literacy of Leaders – If you use traditional business reporting tools, will your leadership understand them with ease?
- Transparency – Does the tool you use communicate the full picture of your ministry in a way that is easily shared throughout the community?
- Time to Prepare – Is the amount of time spent preparing the reports proportional to their use and purpose?
You have many options in how you report and communicate your financial position and resources – make sure it is a tool that will be well used and easily understood across your entire community.
Rev. Micah James is an ordained minister with the Christian Church (Disciples of Christ). Micah serves as Associate Minister of Faith Formation at First Christian Church of Edmond, OK. In February 2015, Micah and her father, Rev. Mike Hunter, launched AdminIsMinistry, a free resource on church administration topics that helps better equip smaller congregations to do the ministry of Jesus Christ.
The NBA incubates new ministries, supporting social entrepreneurs of faith who are serving their communities in a variety of innovative ways and empowering these Disciples-led health and social service projects to focus on growth, impact, and sustainability. Learn more at nbacares.org/incubate or by contacting Rev. Ayanna Johnson Watkins, Director of the NBA Incubate Initiative.