Why “last year plus three percent” is not a budget

What realistic assumptions look like

• Revenue or giving: based on trend, attendance or customer counts, known changes and seasonality, not a flat percentage.
• Personnel: each position, each raise, benefits and payroll taxes, plus any planned hire with a start date.
• Facilities and recurring costs: actual contracts and renewals, with known increases.
• Programs and ministries: what each leader plans to do, and what it costs, agreed in advance.
• One-time items: equipment, repairs, projects, with a quarter attached to each.

Build it in this order

Start with the mission or business goals for the year, written in a few lines. Then build expenses from the goals, position by position and program by program. Then forecast revenue honestly, with a conservative case and an expected case. If expected revenue does not cover planned expenses, that gap is the most important conversation of the year, and it is better to have it in November than in July.

Review it monthly, not annually

A budget earns its keep in the monthly review. Compare actuals to budget, investigate variances that are large or unexpected, and write one line explaining each. Some variances are timing. Some are decisions that changed. A few are problems. Naming which is which is the whole point.

Pair the budget with a rolling forecast: each month, re-forecast the remaining months of the year based on what you now know. The budget stays fixed as the plan; the forecast tells you where you will actually land.

For churches and boards

A budget built from assumptions is also easier to explain. Boards approve numbers they understand. “We expect giving to grow with attendance, we are adding a part-time role in March, and reserves stay above our target” is a budget. “Last year plus three” is not.