How does your church spend its money?

How does your church spend its money?

Delano Sherley, CPA

The current economic downturn has certainly had an effect on non-profit organizations. With charitable
contributions down an average of 7%, many organizations have been forced to take a closer look at
expenditures to see which expenses can be reduced or eliminated and how to best allocate the
resources available.
This process is very healthy. During good economic times and periods of growth, organizations tend to
spend more and get more lax with how funds are spent. I have seen this lead to devastating
consequences, which could have been avoided had the church reacted sooner. Preparing an annual
budget helps give the church a clear picture of where the church is allocating its funds, and also provides
a tool to show what areas can be reduced if revenues begin to fall. Studies show that 21% of churches
have recently had to reduce spending, with 18% reducing payroll related expenses. Reviewing expenses
and making sure they are in line with income helps prevent a crisis further down the road. The process
also helps identify areas where expenses can be reduced to allow more funds in areas that the
leadership wants to focus on.
This process is not only important for a church suffering from decreased revenue, but also for a church
experiencing a period of growth. If the growth creates a need to expand, and additional financing is
needed, the historical financial statements need to reflect the ability to make the payments on the
increased debt. Banks want to see how the church can make the payment based on the previous couple
of year’s income, not on where the income might be based on your projected growth.
During the process, the question often comes up “how much should we be spending on various budget
areas?” One writer suggested the following for a healthy church:
Personnel: 40-50%
Operations: 20-30%
Department Expenses: 10-20%
Evangelism/Missions: 10-25%
Another writer suggested 25 percent for each category, although I have yet to find a church that can
balance the budget this evenly. Payroll related expenses are always the largest budget item.
While these percentages are only suggestions, a church will find that if one area takes up a higher
percentage of the budget, they may not have the funds available to operate in other areas as they
would like. For example, if you are spending 70% on personnel, the church will not have enough funds
for operations and outreach. One exception to these suggestions would be for younger churches, where
the personnel expenses may be higher until the church grows. A survey conducted by our firm found
that for those churches that responded, 34% of the budget was allocated to payroll related expenses.
A church that has to spend more than 25-30% of their budget servicing debt likewise will find itself
straining to meet the other financial needs of the church.
A recent survey showed the following average breakdown for churches:
Personnel 42%
Building 20%
Missions/outreach 15%
Programs 16%
Administrative 7%
At the end of the day, how a church allocates its resources should be a reflection of the vision of the
pastor. I know of a church where the pastor’s heartbeat is missions, another where community
outreach is his focus, and still another where he feels called to expand the church facilities to
accommodate anticipated growth for the end-time revival in his area. Each church should allocate funds
to reflect the vision God has given the pastor of that church. In order to fulfill the vision, more resources
will be allocated to the vision, and less to the other areas of the budget.
Just like one’s personal finances, the church budget reveals the churches priorities.
Delano Sherley is a CPA in Cincinnati, Ohio. He is president and owner of Delano Sherley and Associates. He has
over 25 years experience working with privately held companies and churches. He can be reached at 513-737-1314
or Delano@dsacpainc.com.
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