I cut my leadership teeth while pastoring a church as a very young man. The world of budgets and spreadsheets was brand new to me, and it was immediately my least favorite part of leadership meetings. My brain connects with ideas and words. My brain historically struggles with numbers. In those early days, I crafted a story for myself.
“I don’t like numbers and budgets or money. Therefore, I’m not good with numbers and budgets or money. I can’t learn what’s going on with the numbers and budgets and money of this ministry. So, I will ignore all of that aspect and focus on vision.”
This a sad and terrible story. It’s also untrue and impossible to put into practice.
My personal narrative of “I’m not great with money and could never learn” is a false narrative. Thirty years later, my brain still connects better with words and ideas than with numbers – but I have learned. And so can you.
Move beyond a poverty mindset
That God has created us with distinct personalities and talents and tendencies is such a beautiful gift. I work with people who have different strengths and interests from me. And I love that. I also love the fact that God has gifted us with the ability to learn. “We change, He changes not” is a very, very good thing!
A poverty mindset says, “I can’t do this; therefore, I can’t learn this.”
An abundance mindset says, “While this isn’t a part of my natural aptitude, this is something I can learn because it’s an essential part of my calling.”
This is a true story for any personal strengths and weaknesses.
Now, you may not oversee your entire organization’s budget, but no matter what you’re doing, it involves finances. Thus, the financial aspect of your work, program, or team is like the trunk of the tree. You need a plan. You need to know where your money is going, and not speculate about where it went. It’s impossible to have a sensible vision conversation without having a budget conversation. You don’t have to be a financial professional to lead. But you need to have the ability to enter the financial conversation.
Of course, you need a budget
I work with a couple who have a start-up business in Central Asia. They are both trained and highly educated in their field. As I began working with them, I asked: “Did you get any business training while in school?” The response was laughter. She CLEPed out of a business accounting class because she’d already met her math requirement. Other than that, nothing.
Like my early days as a pastor, and so many of us on the field, they were ill-equipped for many of the basic, everyday skills we need to serve and lead well.
But that’s not a problem, because we now embrace a mindset of abundance and learning!
One of the first things we did together for their business was to build a budget. You can build a budget for whatever project you’re working on in the same way!
Here’s the simple four-step process we walked through together.
1. Figure out your projected income.
This is where every budget begins.
For my friends in Asia starting a business, we went through figuring out the kinds of clients/customers they would get and how much they would pay. The process is much more straightforward for projects involving donations. How much did you receive last year? How much do you expect to receive this year? Write that down as your budgeting starting point!
2. Figure out your direct costs.
These are the costs directly involved in the production and implementation of your product (or project).
I know. That’s a bit of business-speak. But sometimes we have to go there. Hang with me. Let’s break it down.
For my friends’ business in Asia, these are the costs of providing their service to a customer. For non-profit organizations, this would be costs associated with implementing your program. For example: if you dig wells for people living in vulnerable water situations, direct-costs would include all expenses directly involved with digging wells — things like shovels, PVC pipe, and the salaries of those doing the digging.
3. Figure out your indirect costs or overhead.
These are all other costs not specifically related to the service you provide. For my Asian friends, this includes things like office space, utilities, a copy machine, and a laptop.
For our well-digging project, this would be things like equipment storage and research and development. For non-profits, indirect costs also include any expenses connected with administration and fundraising.
4. Take out your taxes.
You should get local, professional help here for obvious reasons. Just make sure you include all necessary taxes in your budgeting process!
That’s all you need to know! Put it all together and you have a budget for your organization. Knowing direct costs allows my friends in Asia to know what to charge for their services. Tracking indirect costs helps them keep their overhead lean, increasing their overall earnings.
For non-profit work, knowing the cost of your program is an incentive for donors to give! It’s important to track administrative and fundraising costs (indirect cost equivalent) so they can remain at healthy and sustainable levels.
Learn the language
Accountant-speak is a slightly unfamiliar language than what’s used by us financial common folk. But guess what? You’ve already learned some of the most important terms (budget, direct cost, indirect cost, and overhead). Learning accountant terminology will not turn you into a number-cruncher. There’s a lot more to accounting than that. But if you know some of the common language, accounting becomes much less scary, and conversations with your bookkeeper are less cryptic.
Here are a few more important terms to consider:
—Account/Chart of Accounts
In simplest language, these are budget categories for income and expenses. Your accounts are the names you give to categorize the money or the assets that your organization receives and spends. It’s important to have a complete list of these categories.
—Profit and Loss (P&L) Report
This report measures the amount of income versus expenses that are billed—regardless of whether the cash is on hand. Just because you have money coming into your organization doesn’t mean you’re making a profit . . . or breaking even! P&L shows the reality of what you spend, what you receive, and what you have left over.
This measures the amount of actual money that has flowed through your organization or outreach event, regardless of what is billed.
There’s more. But with these basics, you know how your organization’s or project’s money is working for you, while having freedom to focus on leading other aspects of it with confidence.
You’ve got this, with these two simple steps:
—Bring on the abundance mindset
—Learn the basics
If you’re like me, budgets and money-talk may never make your heart sing and dance (although I have grown to appreciate the art of a good spreadsheet). But, these topics no longer overwhelm me. Don’t outsource your voice because of things you don’t understand. I don’t want that for you!
Learn what you must. Lead with your strengths.
This makes for an effective, growing work, whatever your calling might be.
Where do you need to grow today? Do you need to change your mindset or learn the basics? Or both?
Reach out and let me know how I can help!
This month’s workshop: Is this true of you—You know that Christ died for your sins . . . but are you living like you believe that? As you help people grow in their faith, can you adequately teach them about forgiveness? Sadly, too many Great Commission workers can’t. Don’t let that be true of you. In this workshop Shonna will equip you to answer three key questions about forgiveness. Get it today.