As with many areas of finances, the answer depends upon the specific circumstances and vision of the church. In every case, we recommend budgeting as a financial best practice that will improve financial accountability and stewardship. When creating a budget, we recommend surplus based budgeting which means that the plans should provide a surplus at the end of the fiscal period… In other words, spend less than you take in.
As to developing specific spending by category, one way to consider is to look at the lending guidelines for obtaining a loan. Our research indicates that lender guides for personnel cost should be in the range of 33% to 45% of total income. Personnel costs includes all salaries, wages and benefits of the staff. If the church has a loan, lending guidelines dictate no more than 33% of total income be allocated to debt service meaning payments of principal, interest and fees on the debt. Keeping overhead / administrative cost low is always prudent so we recommend a range of 5 to 20% of total income for administrative cost. Spending for worship services, ministries, care, benevolence and missions will need to be considered in the budget process after considering personnel and administrative overhead cost without creating a deficit financial position. The specific spending percentage for each of those categories can be in the range of 1% to 25% depending upon the vision, passion, and outreach for the church.
Another way to consider is to look at your ministry costs (Worship services, Pre-School, High School, Care, Benevolence, Missions, etc.) just like a company would look at their “Cost of Goods Sold”. In other words, FIRST start with your expenses for those categories. Then, look at all of your non-salary overhead costs (Things like your building, office supplies, meals, etc.). Then, reserve 10% for cash flows. Finally, whatever is left is what you can / should spend on personnel.
There are several ways to look at this and we’re happy to help think through this with you.