Contractor/Vendor Selection Made Simple for Parish Managers
Michael J. Castrilli
Challenges and Opportunities
Does your parish struggle with creating clear, understandable and transparent financial reports? If so, you are not alone!
As churches balance the broad range of financial information that parishioners seek, they also struggle with what to report and how to communicate this information. Many churches offer financial reports that are inaccessible or downright confusing, while others report results in such a basic fashion that the data does not lead to any clear insights.
Even though studies show that communicating financial information to parishioners has a positive impact on stewardship and involvement, many churches either fail to see the linkages or become paralyzed by the options. Sadly, beyond the reporting of the end-of-year financial statements, a significant number of churches choose not to report any financial information.
This article will explore strategies for communicating church financial information. Learn how to construct a comprehensive, yet concise financial narrative and discover best practices in choosing the most compelling visuals (e.g. pie charts, column/bar charts, line graphs etc.). A substantive church financial report will both engage and empower parishioners to understand their parish finances.
Part I: Construct the Financial Narrative
Define the Goal and Audience
Two questions are critical as you begin to create any financial report, “What is the goal of the report?” “Who is the audience?” Answers to these questions are essential to help you as you craft the narrative. By understanding the purpose of why you are creating a report, you will have direction as to what you build.
For example, are you offering a high-level overview of revenue and expenses for the prior year? Or, is the report being created for the Finance Council as they help you prepare the annual budget? The answers to these questions will help guide you as to what to include in the report and the level of details that are needed.
What is important in this process is that you include all relevant information to help the audience achieve informed insights. There is a tendency to believe that the term “financial transparency” is defined as “the more information provided, the better the report.” However, this is not true if the information you communicate overwhelms or even distracts the audience from the most critical information. Just because you have extensive data does not mean that you need to include every piece of information in all of your reports!
Tell a Story
Mark Twain said the first rule of writing was “that a tale shall accomplish something and arrive somewhere.” I argue that that the same rule applies to creating financial reports. The best financial reports have a beginning, middle, and arrive at a conclusion. The structure you can use for your narrative is to start with where the parish is today with finances. Next, offer any context from the past that can help inform the present situation. Finally, conclude the narrative by looking towards the future.
The Present - Where are we today?
Begin the report with a narrative that concisely describes the current state of finances for the parish. Typically, this will include a discussion of overall revenue and expenses compared to budget targets. For many churches, more than 80% of income comes from collections. Therefore, offer a status on Sunday offerings, donations, and discuss any changes in program income.
In the narrative, include a discussion of expenses. Were there any significant outliers? For example, did a massive snowstorm cause maintenance costs to soar? The narrative can also describe updates on staff changes, capital projects, debt obligations/payments, endowment/savings accounts, policy changes, and/or any programmatic updates.
The Past – Where have we been?
In the next section of the narrative, discuss how the financial situation today relates to the history of the parish’s finances? For example, if collections are lower than anticipated, consider any previous cases when this has occurred. Visuals in this section can be particularly useful to offer additional context or convey complex financial information (see Part II below).
The Future – How are we leading into future?
Conclude the report with a discussion of the future. Consider answering questions that may include, “What are the areas of growth at our parish?” “What is the plan for addressing any challenges in the future?” “What areas are we most grateful?” “Where do we see our future as a parish community?”
For example, if there has been a surge in parishioner registrations, discuss the opportunities. If a new staff member has been hired to work on a particular program, discuss excitement for parishioners to get involved. If new policies are being implemented to address a financial situation, discuss these areas openly.
Address Challenges Directly
Inevitably, financial problems occur and need to be communicated. For example, due to a decrease in collections, the parish drew a larger percentage of endowment funds than in previous years. In drafting your response to financial challenges, consider the 3-R Approach. The first step is to reflect on what has occurred. What is the actual data telling you about what happened? The second step is to review reasons or circumstances and consider any changes that are necessary for the future. The third step is to refine any policies and procedures to mitigate the likelihood that the problem will occur again.
When reporting a challenging situation, keep the narrative simple, straightforward, and offer answers to the relevant “W” questions.
Who is/was involved?
When did it take place?
Why did it happen?
At the end of the report, provide a point of contact (POC) with name, phone number, and email to address comments, questions, or concerns. If readers seek further information, they will have a POC that can offer additional details.
Part II: Choosing Visuals to Communicate Financial Understanding
To complement a report’s narrative, a variety of visuals can help enhance a report’s readability and accessibility. I will define the term “visuals” broadly, including any graphs, charts, pictures, tables, even art that displays data to accompany a concept, topic, or method. The Chinese proverb, a picture is worth a thousand words, speaks well for the impact visuals can have on virtually any report. Alternatively, I also like to say in fun, when you put together a visual and the picture is not worth at least 250 words, consider not including it!
Open up any word processing, spreadsheet, or presentation software and you will find an endless list of visuals that you can use. However, remember that beautiful colors or stylish charts or graphs may make a report “look” good, but does the visual add value to the information being conveyed? Other questions to consider include, “What are you trying to say or highlight that words are more difficult to use to explain the concept?” “What is the goal of including a particular visual?”
Opportunities for Visuals are Endless - Choose Well
Once the questions above are answered, there a variety of visuals you can choose. Without the time in this article to describe every visual available, I will discuss a few of the most common used in church financial reports. After a brief description, I will discuss the advantages, as well as any cautions/recommendations when to using a particular visual.
As you can imagine, the choice of which visual to include for your particular situation will be subjective based on a variety of circumstances. The discussion below is not to offer one-size-fits-all solutions, but provide some general parameters for your consideration.
Pie charts are useful when your goal is to present data on a category/topic as a percentage of the whole. Pie pieces can be easily arranged by color, shape, and highlighted to emphasize information.
The pie chart is easy to read, understand, and people are familiar with this visual.
The pie chart is particularly useful to show relative proportions, or percentages of information.
The use of colors and pie shapes display well any differentiation among categories.
Pie charts are often overused without regard to whether these charts are the best choice for displaying certain types of data. For example, a pie chart that offers no distinction between the data (unless this is a goal of your visual) does not add value to the report. If you have more than one data set, it can be difficult for people to look at multiple pie charts and make comparisons.
The recommendation is to use a pie chart when you have between three and seven categories, otherwise the pie chart may become messy and confusing.
Avoid “miscellaneous” or “other” categories. These terms are confusing and can be misleading. If they are included, ensure that the definitions are clear.
One of the most common visuals in reports is a bar/column chart. Using bars or other shapes, the visual displays discrete data in separate columns. These charts can be used to show one data set, or compare two or more data sets by lining them up in the same graphic.
The chart offers readers a simple way to visualize data highs and lows at a glance
The bar/column chart can help readers visualize trends, bumpiness or patterns in data. Trends occur when information moves in a general direction, or data can look bumpy meaning that the information is erratically up and down. The graph can also show patterns where data moves in a repeating fashion.
The use of colors and shapes offer an easy to read and appealing visually.
Comparing bars one against the other can quickly show progress or differentiation.
If using a variety of colors to display more than two categories of data, ensure that the data can be easily recognized. For example, a black and white report may not show the subtle differences between columns.
Label the horizontal (X) and vertical (Y) axes.
Be careful not to overwhelm readers with so much data that the chart looks messy and then becomes difficult to read.
Line graphs connect individual data points and then connect the points with a line. These graphs are primarily used to display trends in data.
Line graphs can quickly shows data ranges, minimums, gaps, clusters or outliers.
Similar to the bar/column chart, the line graph can help readers visualize trends, bumpiness or patterns in data.
The graph is useful when data contains evenly spaced values such as months, quarters, or fiscal years.
The line graph is less appealing to the reader than other visuals that can be used (i.e. bar/column charts) to display similar data.
Be sure to create a “Key” that distinguishes the various lines in the graph.
Ensure that the horizontal and vertical axes scales are right-sized given the range of data that is presented.
Tables display information into columns and rows, offering a structured format for presenting information.
Visually appealing and familiar for reviewing financial data.
Tables are great for displaying data that includes math equations including sums, averages, ranges, and multiple units of measure.
Double-check numbers contained within the table to safeguard against careless errors.
Ensure that the table includes the right level of data and does not include extraneous information that makes the table complicated to read.
As you develop your report, ask yourself the question, “Is this clear?” A helpful technique may include seeking the counsel of a colleague or member of the Finance Council. Ask the question, “As you look at this report, what do you think are the key takeaways that I am trying to convey?” If your reader struggles or offers a lengthy, convoluted message, you have your answer. Ask parishioners to weigh in, allow others to assist you, seek input from staff.
When creating a financial report, a common mistake is to forget to include the overall picture, providing context to what is being reported. For example, if I report that our savings account has $200,000. Is this number good, bad, or indifferent? The answer is, "It depends." The figure needs context. It might help to include the savings amount from the last three years. Has it been on a slow decline, increase, or up and down over these years? Additional historical data can provide context to the reader.
Practice, Practice, Practice
Remember, writing these reports takes practice. The first time you compile a new type of report and offer it to parishioners, it may not be perfect. Share the report with others, get feedback, and revise. Creating something is better than producing nothing. You are not alone in this process. Every member of the parish has a stake in understanding the finances of their parish.
As you lead efforts to create accessible, empowering, and transparent financial reporting, remember that the methods and techniques discussed are not only good management practices, but also speak to the values that we share as a Christian community. The clearer we are in our communication of church finances, the stronger we become as a community.
Michael Castrilli is an adjunct professor at Villanova’s Center for Church Management and Business Ethics and the author (co-author Chuck Zech) of Parish Finance: Best Practices in Church Management (Mahwah: Paulist Press, 2016).
Question/Comments? Feel free to contact Michael Castrilli at email@example.com or (202) 262-7969.
Castrilli, Michael J., Charles E. Zech. Parish Finance: Best Practices in Church Management. Mahwah: Paulist Press, 2016.
Foreman, John W. Data Smart: Using Data Science to Transform Information into Insight. Indianapolis: John Wiley & Sons Inc., 2013.
Zech, Charles E., Mary Gautier, et al. Catholic Parishes of the 21st Century. New York: Oxford University Press, 2017.