Smart Church Solutions

We have been asked the question – “What percentage of our church budget should be allocated to facilities?” I really wish it were that easy and that there was a magic formula or a standard that works for every church. I wish there were a CPA firm or financial consultant that could empirically state the answer in a manner that worked universally. Alas...that is not the case.

In fact, using a percentage of the whole to determine your church facility budget is a sure fire means to increase deferred maintenance for most churches. Let me explain the math behind this and the rationale for using a different formula.

The Math Behind A Church Budget

Let’s make the assumption you are at least a B+ to A- Facility Steward, and your budget is at about $5.54/SF (see our 2020 Benchmarking Report) for operations, plus Capital Reserves of $2-3/SF annually. That is the range that would give your church the best opportunity to maintain your facility at an acceptable level to keep up with the natural deterioration of its physical components.

It would also mean you would maintain appropriate capital reserves for renewals and the end of the useful life of systems and components. If your church budget has funds allocated for facility operations at the above standards, then consider yourself fortunate. The fact that I even have to call you “fortunate” to do what is necessary to property steward what God has entrusted to you is disturbingly unfortunate.

I am continually burdened and disappointed that we witness churches that fall woefully short of these minimum standards. Enough weeping and gnashing of teeth...moving on.

When Life Hits

If your church budget is X and your facility budget it Y (assuming Y is based on the above), you may be just sailing along in facility stewardship euphoria. But then there is something that happens at the church. There is a decline in attendance, or reduced income...or a PANDEMIC. The finance committee immediately starts to look at budget cuts.

What can be done to remain solvent and still minister to our congregation and community? What if we cut staff? Can we refinance the mortgage? Should we impose a spending freeze? Should we cut back on janitorial services? Could we use more duct tape on the HVAC units to get another year out of them?

OK, I get it. Things happen. Hard decisions have to be made. But...what happens if the financial landscape does not improve or worsens. Now, the budget is 25% less than it was when all was rocking along. We start asking the above questions with more desperation and with even deeper cuts.

Let's Look At An Example

It feels like the ship is taking on more water than you can bail (and that may be the case if you have neglected your roofing). To add to our example, let me apply some actual numbers:

  • Your church budget is $500,000 annually when things were good.
  • Your facilities are about 20,000 SF and you have been blessed with $150,000 of operating and capital reserve budgets.
  • You have been chugging along pre-downturn...all was good.
  • Then the economic issues hit, and your giving is down 25%...to $375,000 – OUCH!
  • The finance team wants to cut the budget by the same 25%, but...
  • You still have 20,000 SF to clean, heat, cool, maintain and plan for capital renewals, and now you only have $112,500.

Cutting Your Church Budget

So, as a facility steward, what do you cut? If you cut capital reserves, you will pay the piper down the road when there are no funds to replace the HVAC that just died.

You could cut cleaning by 25%...but the occupants of the facility may start to notice a lack of care. You could reduce the spatial utilization by 25% so you don’t have to heat, cool or clean 5,000 SF, but how would that impact the overall ministry?

In the above example, the facility operations are about 22% and the capital reserves is about 8%. That is what's “needed” to maintain facilities and be prepared for the inevitable long term renewals, so your church is wise and does not reduce the facility budget.

What does that do to the “percentages”? That’s right...they go up! The facility operations percentage would increase to nearly 30% and the capital reserves would jump to 11%.What’s my point? It’s pretty simple. It is not prudent to use the percentage method of budgeting to establish your facility budget.

Our Two Cents

We believe that the best metric is $/SF (dollars per square foot). Your church budget may fluctuate up or down, but unless you build additional space or sell off or demolish space, you have the same amount of square footage. The size of your facility is often a more static basis for establishing your facility budget...with an appropriate amount of consideration for inflation.

I encourage you to meet with your finance team and show them the logic in this approach. Your congregation will thank you for being a proactive Facility Steward.

Also, make sure to download our free eBook, The Four Buckets of Church Facility Budgeting to plan for the future today!