Is Your Financial Reporting Above Reproach?
(Originally published as an article within ECCU’s former e-publication, Ministry Banking Today.)
Last month, we offered practical tips for saving time and money in the lending process (How to Save Time and Money During the Lending Process). The first step is providing your lender with solid financial information. But practicing good financial reporting should be a part of your ministry’s regular operations, regardless of your lending needs. According to Mark Jones, cash management expert at ECCU, “Churches are often pressed into implementing best practices to qualify for a loan. But solid financial reporting is also a reflection of good stewardship. It is simply the right thing to do.”
Whether you’re preparing for a loan or going about the daily business of ministry, now is the time to get your financials in order. Below are a few steps to get you started. For a complete guide to financial statement preparation, we recommend ECCU’s white paper Financial Statements Matter.
The first step in financial reporting is to identify your stakeholders. People who have a vested interest in your financials are typically separated into the following groups:
Management, pastoral staff, leadership team, and board. These people are responsible and accountable for the numbers being reported. They are typically interested in the details and want to see financials sliced for specific usages.
Donors and/or congregation. This group is looking for the big picture. Donors want to know if you’re within budget and wisely stewarding the money they’ve contributed. Donors can be easily disconnected from the ministry and want to see how their contributions are impacting lives for the kingdom. Let your financials tell that story.
Regulatory and tax authorities. Parachurches are required to submit a tax return to the Internal Revenue Service every year. While churches are not required to report, they should seek to maintain the same high standards.
Lenders, vendors, and consultants. These outside parties assist you with financial decisions and help to make your vision a reality. Your financial institution should be in this category, as both a lender and consultant. Whether you’re applying for a loan or opening a new account, look for a financial institution that will review your financials and help structure your loan or accounts to maximize the benefit to your ministry.
Once you’ve determined your audience(s), structure your financial statements to report appropriate information for each stakeholder. Begin with Generally Accepted Accounting Principles (GAAP). Accounting principles for ministries are slightly different, so it is important to have a good accounting staff or a firm familiar with these principles. Financial statements will provide you with above-reproach financial information and allow you to determine the appropriate information to share with various stakeholders.