Working with churches in the realm of generosity, I see it quite often – common mistakes in the church budget planning process. I see these with regularity, which makes me wonder if perhaps you too have committed one or more of the three most common mistakes in your church budget planning process and not realized it. (It’s ok – not only will I share with you what these three mistakes are, I will also share some ideas on how to avoid or fix them!)
The three mistakes listed below come straight from a recent webinar on the subject. You will want to pull it up soon to hear Jim Sheppard, one of our Principal Partners at Generis, and William Vanderbloemen of Vanderbloemen Search Group discuss these common mistakes made in the church budget planning process.
MISTAKE #1 – Operational Expense Mistakes
Regardless of church size and mission focus, there are three common line item “categories” in every church budget: people (personnel) expenses, building/facility expenses, and everything else (ministry, missions, etc.). What problems do we typically see in this area?
Churches often let the people and building/facility expense categories grow too large, at the expense of ministry and missions. The most common mistakes here are:
- staffing expenses that have grown larger than they should for a specific church’s model of ministry.
- facility costs, usually including over-sized mortgage management, on a space that is too large or was a bit too aggressive financially to construct.
If you have too much going to one or both of these categories, little is left to actually fund the mission of your ministry! For example, if you have 50% of your budget going to personnel expenses, and 40% to building/facility expenses, that only leaves 10% for everything else. And that 10% is supposed to fund all of your ministries and missions while staying within budget.)
So what portion of a church’s total budget should these categories hold? That depends largely on your individual church, but here are some benchmarks to consider:
The standard rule that has floated for years is to keep personnel expenses between 45-52% of total budget. But that isn’t appropriate for every church. It’s too much for some, and perhaps not enough for others. It depends on how you do ministry, and what resources you provide.
- Are you a staff-driven church, or one that is more congregationally driven, leveraging a large volunteer pool?
- What kinds of programming do you offer? A church that offers an on-site counseling center, daycare, or school might have larger personnel budgets than those that don’t have those programs on site.
- A church that outsources some roles might have a lower total personnel expense. I am seeing more and more the outsourcing of several areas previously handled by church staff, including communications (print design, website creation and management, video production of church announcements, etc.) and finance (accounting, payroll, etc.).
- What is too much or too little? Vanderbloemen shared that a personnel budget running lower than 40% or higher than 65% would both be numbers that might indicate need for some study and review.
Building/facility costs that exceed 30% of total annual budget make it very difficult to balance the ministry and personnel categories. I’ve witnessed too many times the church heavily burdened with a debt load of 4-6 times their annual income (don’t ask how they managed to take on that much risk), with a mortgage payment that simply doesn’t fit into the annual budget. The only way to maintain ministry and a barebones staff is to continually campaign for additional funds to manage the mortgage. Trust me – you never want to be in that place.
Building for future expected growth (build it and they will come), or overbuilding with the expectation that future church growth will bring the givers to help pay off the loan, are common mistakes made early in the building planning process. Debt is the easiest thing to acquire and the hardest thing to retire.
MISTAKE #2 – Hiring and Compensation Expense Mistakes
This essentially boils down to inappropriate planning for hiring and firing. Vanderbloemen has nailed the costs associated with hiring in their Bad Hire Calculator that can show you very quickly the actual cost of a bad hire. (Sit down before you do this!) They say hiring is the most expensive part of team building.
Lack of budget planning for transitions is another potential miss.
- Severance packages are wise as one nears retirement or when you sense a need to transition to a new person on the team. Having the funds available for severance with a separation agreement helps to prevent bad-mouthing as a person is leaving. Yes it happens, and with social media engagement, once started it can have a profound negative impact on the church and everyone involved. Proper preparation in advance can help you avoid this pitfall.
- Hiring expenses are not fully anticipated. There are dinners, travel costs, and a few ineffective weeks on payroll as the new hire begins their new role with you.
- Budget with contingencies, allowing for hiring expenses even if an unexpected situation arises. For example, this could help you during a maternity leave, or the need for temp help to fill an administrative role, or the results of a bad hire that necessitates a do-over.
MISTAKE #3 – Forecasting and Growth-Driven Budget Mistakes
It’s important to always be working at expanding the giving base, encouraging new givers to on-ramp with you. Many times the church focuses on growing existing givers, which is great, but that alone won’t do it. You won’t always get substantially more money from the same people year over year. So what should we be doing?
- Expand the giving base
Implement invitational and inclusive strategies. One Fund initiatives are good at this, as they lead with a discipleship approach that is effective at on boarding new givers while encouraging existing givers to grow in the spiritual journey of generosity. (Click here if you’d like to learn more about the One Fund approach.)
- Know the impact of new givers
These are otherwise known as your “front door” givers. Work at getting new givers into your small group ministry as soon as possible. There is a definite correlation between group participation and giving metrics!
- Know the impact of “lapsing” givers
I call those “back door” givers. This can be an extension of your pastoral care ministry because giving lapses for only a few reasons (other than a total relocation when the family moves to a new job, for example). While you work to expand the front door, don’t neglect what is going out the back door! There are strategies to impact both.
A final thought. While in the budget planning process – don’t budget every dollar you expect to receive. Set some aside for unexpected expenses that will surely arise during the year. For example, if you anticipate receiving $1,000,000 in tithes/offerings this year, budget planned expenditures up to 90% or $900,000 in this example. Budget the remaining $100,000 in reserves. If nothing unexpected arises, you can pull the trigger on one of those “nice to have” expenses that weren’t a “have to have” at the beginning of the year. Or, you could bless your missions and outreach partners with gifts from funds that you didn’t have to spend within the confines of your ministry.
So you now know three common mistakes in church budgeting, and a few suggestions to help you avoid making them yourself. I would love to offer you some personalized assistance, as that’s what typically makes the largest impact. Just send me a quick email and we can set up a conversation – no strings attached – to directly address your specific budgeting questions, strategies for your Front and Back Door givers, and other ways you can impact your generosity culture.