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Establishing An Operating Budget For Facilities

by Jill Dionne     Added April 01, 2005

As published in Worship Facilities, Apr/May 2005

When establishing an operating budget for the facilities area of a church, there are a number of considerations. Among some of the questions to ask are: What is the ongoing cost of running a facility? What is the cost of personnel? Should any personnel needs be outsourced? What issues need to be addressed when planning for maintenance and replacement of equipment? Answers to these and similar questions will be essential in building an effective operating budget.

"Personnel and utility expenses are two of the largest expense categories for facilities" according to Tom Greer, CFO of Mariners Church in Irvine, CA. He adds, "but they are fairly easy to project after a minimal amount of study and analysis." Utility expenses are often seasonal. Those churches located in the north tend to experience higher utility bills during the winter months, when heating usage soars. On the other hand, churches in the south see their utility bills jump during the heat of the summer when their air conditioners are in constant use. Regardless of where you may be located, it is likely you will experience fluctuations throughout the year. The most effective way to manage these expenses is to review historical utility usage, and contact the utility providers to get an estimate of rates for the coming year. You will then be able to project costs in each area. In addition to providing rates for the upcoming year, Greer has found utility companies to be helpful in making recommendations to improve efficiency, resulting in cost savings.

Larger churches will have greater personnel needs. When creating the budget, you must evaluate what portion of those needs will be met with internal resources and what portion will be outsourced. It is important to remember that the cost of internal resources is more than just salary. You will need to consider health insurance, life insurance and other benefits offered to employees in the total cost. Because of this, there will be times when it may make sense to outsource certain functions (such as cleaning, set-up, etc.) to keep the costs manageable. Furthermore, there may be responsibilities which require a certain amount of training and skill, such as HVAC maintenance, making outsourcing a better option. Regardless of which choice is right for your church, you should be able to establish accurate budgets either through personnel information or outsourcing contracts. While outsourcing may appear to be the logical choice from a financial perspective, there is another consideration to make before making a final decision. Greer makes the following observation based on his experience with outsourcing: "The success of outsourcing hinges on a close relationship between the church and the outsource firm. They need to understand ministry and have a heart for ministry."

Capital expenses and reserves for large repair/replacement items are a little harder to project. This would include items such as replacement of roofs, HVAC units, carpeting, etc. During the budget process, Greer will meet with the facilities manager and the ministry leaders to identify any specific capital expense items scheduled to occur in the following year. In addition, he creates a contingency reserve each year for unforeseen projects. Lastly, a category is established to accrue for the future projected cost of repairs and replacement items. In order to estimate this accrual and ensure the proper funds are available when needed, it is necessary to keep a record of the expected life span of each piece of equipment, recommended maintenance schedule/costs, and estimated replacement costs. Ultimately, the hardest part of establishing any budget is dealing with the unknown or unpredictable expenses. For Greer, "the budget categories most helpful in managing costs are those categories that help manage the unknown." For this reason, the contingency reserve mentioned above becomes critical to help create a buffer for those unknowns. And adequate accrual for replacement and repair on equipment and facility maintenance builds financial provisions for future needs without burdening the church with large expenses in any given year.

Other items to be considered when creating a facilities budget are insurance, landscaping, snow removal, and other general maintenance items. Insurance policies may not renew until sometime well after you have established the budget for the year. The broker should be able to give you an idea of what the renewal premium might be, but it is subject to change. Landscaping and snow removal costs in many ways are outside of your control, however, it is necessary to forecast based on trends from prior years and contracts with outside vendors for these services. Expansion projects coming to completion during the year may well result in increased costs in the area of landscaping, utilities, cleaning, etc. and should be considered when the overall budget for the year is established.

Exhibit A (below) is representative of the types of accounts that may be useful when creating a facilities budget.

Establishing accurate budgets is best accomplished by understanding the elements that make up the budget, managing those you are able to manage, and developing contingencies for those which fall outside of your control.

Exhibit A - A Chart of Accounts for a Facilities Department

Revenues:

• Facility Usage

Expenses:

Salaries & Benefits

• Salaries
• Benefits
• Casual / Temporary Labor

General

• Supplies/Materials
• General Maintenance
• Equipment Maintenance & Repair
• Equipment Purchases (Non-Capital)
• Equipment Rental

Campus Services

• Cleaning Supplies
• Equipment Maintenance & Repair
• Equipment Purchases (Non-Capital)
• Maintenance Services
• Exterior Maintenance
• Building Maintenance
• Phone Equipment Purchases (Non-Capital)
• Traffic Supplies
• Volunteer Expenses

Utilities & Fixed Expenses

• Internet
• Copier Lease
• Mortgage & Interest
• Telephone
• Cable
• Insurance
• Disposal
• Electricity
• Natural Gas
• Sewer & Water

Vehicle Expenses

• Fuel
• Repair & Maintenance
• Insurance

Jill Dionne is a senior financial analyst at Moody, Famiglietti & Andronico, a public accounting and consulting firm in Tewksbury, Massachusetts.

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