There is a lot of healthy debate out there in what
percentage a personnel budget should be in comparison to the overall budget
amount. It is a great financial question to ask and probably should be asked
more often prior to budget preparation. I have been preparing church budgets
for 23 years and have used the same formula from the beginning. I have applied
this formula to budgets up to $3 million dollars and it works to keep the church
healthy financially.
The formula is keeping a balance between two key parts of
the church budget: debt load and personnel costs. Here is the reason why you
should watch and balance these two parts. If you have too much debt load, then
you will strap the budget and not have enough dollars to hire the right amount
of staff and/or offer competitive compensation packages. If your personnel costs
are too high, then you may not have enough dollars to borrow money for church
facility growth. Let’s face it! Not enough staff or not enough space will stymie growth.
You can fund programs all you like but without space and staff, you may not go
very far.
The formula I have used as a guide is personnel costs should
between 40 – 50 % of the overall church budget and debt load should be between 20
– 30 % of the overall church budget. So how do you balance these? Great
question. The goal is to not exceed 70 % of the total of both. If debt is a
maximum of 30 % then personnel needs to be at 40 %. If personnel is 50 %, then
debt should be 20 %. If debt is 25 %, then personnel needs to be 45 %. Likewise,
if personnel is 55 %, then that leaves you with only 15 % for debt and that
would be a difficult amount to work with for new construction. If debt was 40
%, then that would make it difficult to staff the church for growth.
There are a lot of other factors that play into budget
percentages. Factors like the size of the campus, age of buildings, size of
budget, age of the congregation, and the vision of the church. If the church is
debt free, and many are, then you can use the lower scale of debt load for renovations
or operation and the higher scale in personnel. However, if new construction is
in the future you don’t want to get personnel too high. It is certainly more
difficult to reduce personnel than to increase it.
Balancing budget percentages is a combination of those 2
absolutes in addition to the factors mentioned above. I have witnessed churches
that went above the debt load guide and ended up not having enough staff to
grow or to pay competitively and lost staff along the way. I also have witnessed churches that let their personnel cost go over the guideline and when it was
time to build, there was no debt load available.
Comments! Suggestions!
