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August 13, 2013

Using Comparative Ratios to Improve Church Financial Health

A close look at similar congregations can aid decision-making.

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If you're ready to go beyond internal comparisons and start looking more broadly at your church's financial performance, comparative ratios are the next step. Ratios can be a key indicator of how well a church is functioning in comparison to its peers. Not only is the actual ratio important, but also understanding how it fits in the range of peers, and which churches are included as "peers."

Comparative Ratios

If your financial information is compared to your peers', it may be helpful to calculate both the average (mean) and the mid-point (median). The benefit of calculating both the mean and median is to reveal the spread of results in the range. If both the mean and median are numbers that are close together, then most of the ratio results in the range are close together and the average is likely to be very useful. If the mean and median are far apart, then the underlying organizations' results are spread out and the average is less important.

An individual that works with church ratios extensively finds it useful to show a minimum and maximum in each range. This lets you know how close you are to the top or bottom of the range. Depending on the ratio observed (for example, average salary per full-time equivalent), it may be beneficial to know how close to the high or low your church is in the particular range.

Benchmarks

Another key to properly interpreting the ratios is to understand the demographics of the other participants in the range, beyond the minimum and maximum in the range. It is important to consider how many participants are in the ratio averages your church is using as a benchmark. An average ratio calculated with only a few churches may be much different than one calculated with several churches.

It is also important to benchmark your church against others similar in size and region of the country. For example, property and equipment per full-time equivalent employee may be significantly different for churches in the Midwest than ones on the West Coast, due to higher property costs in the West.

Benchmarking against organizations with similar asset sizes may be very misleading because organizations with older properties tend to have smaller property and equipment values due to depreciated property values. Perhaps a better way to group peer organizations is by arranging organizations together that have a similar average number of attendees (excluding children), or by the size of unrestricted charitable contributions.

There are various ways to benchmark your church against other churches. You may do it informally yourself or opt to get outside information.

Excerpted from the Essential Guide to Church Financial Health (Christianity Today, 2013), an eBook covering a variety of measurement methods crafted to specifically help many different types of churches.

Vonna Laue is a partner and West Region Director with Capin Crouse LLP, a certified public accountant firm specializing in service to nonprofit organizations through audit, tax, and advisory services. She is licensed as a CPA in California and is a member of the American Institute of Certified Public Accountants (AICPA), the Society for Human Resource Management (SHRM), and the National Association of Church Business Administration (NACBA). Vonna is an Editorial Advisor for Christianity Today's Church Law & Tax Group.

Related Tags: bookkeepers, church finances, money, treasurers

Comments

My big question is "Where do I find the outside benchmarking information?"

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