While your church is unique in its offerings, it still operates similarly to other types of businesses. It must pay employees a fair wage, cover debts and expenses, and maintain a budget. As a church leader, you have an important role to play in the financial health of your church.
One financial item that can have a big impact is your church’s accounting period. There are two ways to operate: on a calendar year, or on a unique fiscal year. Have you ever considered changing from one to the other? Here’s what you should know before making that decision.
What Is a Fiscal Year?
A fiscal year is a period of 12 months that does not start on January 1 and end on December 31. Many churches operate on a calendar year for simplicity, but there are some advantages to switching to a fiscal year.
If you haven’t spent much time thinking about your church’s accounting period, now may be a good time to consider whether a calendar year or a fiscal year would be best.
Advantages of Having a Fiscal Year
For one thing, you can sync your church’s accounting period so that it ends at a time when you naturally have the slowest operations. This will give your employees plenty of time to devote to year-end reporting, since other programs are not as active.
This also means that your employees won’t be juggling all the year-end tasks, such as budgeting and payroll increases, during the Christmas season.
The right fiscal year will also give you a balanced view of your church’s finances. Most churches receive a lot of donations around Christmas, which can throw off your cash flow if you’re using a calendar year.
Challenges You May Face
On the other hand, a separate fiscal year can present its own set of challenges. A fiscal year can make it harder to:
- Coordinate appeals
- Decide when to give pay raises
- Navigate debt payments
With a fiscal year, you’ll need to carefully decide when to coordinate appeals for year-end giving. You could keep sending out appeals at the end of the calendar year, since people are more inclined to give at this time of year. Or you might want to make appeals at the end of your fiscal year to cover any outstanding expenses.
You also need to consider when pay raises and benefit changes will occur for your employees. They may object to receiving pay raises at a different time of year after being accustomed to receiving them around the holidays.
Debt payments are another major consideration. Before changing your accounting period, be sure to talk with your lenders, since your decision may affect cash flow.
Should You Stick to a Calendar Year?
Some churches may like to end the year with the influx of cash that usually comes around Christmas. Another benefit to a calendar year is its familiarity. Switching to a fiscal year can be a big adjustment. However, the transition period is always challenging. If you would like to switch to a fiscal year, here are some tips to help make the transition as smooth as possible.
Be Prepared for Stub Period Reporting
When you change your accounting period, you must use stub period reporting to account for the difference. A stub period begins at the end of the old accounting period, and ends on the last day of the new accounting period. This leaves you with a time period of more or less than 12 months. Be prepared for this aspect of the change, and make sure your employees are filing reports for the correct time period.
Coordinate the Change Among Your Employees and Congregation
Changing your accounting period is a decision that must be carefully coordinated. Everyone involved needs to know the timeline for the change. Make sure your accounting staff knows what needs to be done, and when.
Each church has a unique situation. You may have used a fiscal year in the past and decided it was better to use the calendar year. Or you may have used a calendar year since the church’s founding and the employees are ready for a change. Either way, be sure to consider how this decision will affect everyone involved in the church operations.
About the Author:
Dr. Tom McElheny has served as an elder and director of Christian education for three Sarasota, Florida, churches, holds advanced degrees in business and education, and is CEO of his company, ChurchPlaza (www.churchplaza.com).
