Should Your Church Change its Fiscal Year-End?
- One of the fiscal year-ends recommended above better reflects the church’s natural business year, since it conforms to its natural annual cycle.
- It moves the year-end to a period when operations are typically at their slowest, thereby simplifying year-end procedures and facilitating a better measurement of income and financial position. It would also give your accounting department the necessary hours to adequately perform fiscal year-end closings of the general ledger.
- The budget process can be completed during the slower summer months instead of during the holidays.
- One of the biggest advantages is that this change allows the various departments adequate time to revise their budget when necessary, especially on expense line items. We see many cases in which churches operate behind budget with the expectation that they will catch up in November and December with a strong year-end appeal to meet the budget with year-end receipts. However, a December 31 fiscal year-end does not allow for adequate revisions on expense lines, as they have already been used whether a strong year-end contribution response is received or not.
- A December 31 fiscal year-end can also make it appear that your church has stronger cash flows than may actually be the case, since churches are typically “cash rich” at a December 31 fiscal year-end.
- Finally, a June 30 or other summer fiscal year-end would allow your church to make not only an annual tax appeal in November and December, but also a May or June appeal tied to the end of the fiscal year budget.
One potential disadvantage is that you may need to determine how to use both your accounting system and donor system to create the calendar-year reports necessary for any tax reporting.
With a non-December fiscal year-end, you will also need to determine whether you will keep annual salaries on the calendar year or revise them to reflect the new fiscal year-end.
Please contact us with any questions.
Richard has managed audit and review engagements for more than 19 years and provides church consulting services in a variety of areas. He is a member of the firm’s Church and Denominational Team and helped draft the CapinCrouse Church Financial Health Index™ and CapinCrouse Church Checkup™ and related reports. Richard also serves as his church’s finance ministry leader and on the executive building committee.