Over the last week we’ve been talking budgeting. As I wrapped up last time, I realized I hadn’t made the distinction between equipment upgrades and capital expenditures. How we plan for those should be different because the way they get accounted for is different. Right off the bat, I want to tell you that I am not an accountant and I’m not giving accounting advice. Talk to your finance people about this to see how they want to do things. You score a lot of points when you engage them early and find out the best way to accomplish what you need to do.
Capital vs. Budget
Typically, capital expenses are big ones. A capital expense cannot be written off in one year because it’s useful life is greater than one year. A CAPEX is something like a mixing console, dimmers, a PA or a projector or video wall. These items will show up on the balance sheet as assets and will be depreciated over the course of multiple years.
Now, you might be wondering about things like microphones. Surely a mic has a useful life of more than a year, so why not make it a CAPEX? Well, it comes down to drawing a line somewhere. For smaller purchases, most accounting folks don’t want to go through the paperwork hassle for a $100 mic. Again, talk to your accounting department and find out how they want to handle larger purchases.
For example, we purchased some high-quality radios at Coast, and while the total bill was almost $800, each piece was under $250. So those were just expensed. However, we found a great deal on 13 Elation Impression 90s. I think we paid something like $700 each for them, but because bought 13 of them, it was a significant expense. Because they work together as a system, and the total was $9,100 or so, it was worth it capitalize. So now, there is a line item on the balance sheet that says, “13 Elation LED Lights” with a value next to it. That value goes down each year according to a schedule.
Planning for Capital Expenses
Most churches—smart ones anyway—have a capital expense budget every year. That budget pays for things like parking lot repaving, air conditioner replacements, new carpeting, chairs and tables and things like that. The trick is to get leadership to think about large AVL purchases as capital expenses just as important as the parking lot.
And think about it; if you are working in a production-heavy environment where the expectation is that the sound is high quality, the lighting looks good and people can see the lyrics and video on the screen, the equipment that it takes to make that happen is important. If it’s important, it deserves to be a capital expense.
The upside of having things like a new mixing console added to the capital expense budget is that it doesn’t come out of your operating budget, and it’s approved differently. The downside is that it may take a few years to come up high enough on the priority list. Which is why planning is so important.
Next time, I want to talk about end of life—not yours, but your equipment. We all know that equipment has a lifespan, and at some point will not be truly functional anymore. Planning for end of life for the gear is critical to maintaing high quality production systems, and I’m pretty sure no one else is going to do it for you. Stay tuned
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I’ve said this over and over in this series, you have to build trust with leadership when it comes to budgets. I remember coming into a new church some years back and after about 3 months went to lunch with the senior pastor. After I spent 45 minutes telling him what I found—basically the place was a mess and almost everything needed to be replaced—he said, “Mike, I’ve dealt with a lot of tech guys, and they all say the same thing; ‘The last guy did it all wrong and we need to change it.’ Why should I believe you?” I started in on what I thought would be another 45 minutes of explaining my position with as many facts as possible. After about 15 minutes he stopped me and said, “Ok, ok, I get it. I believe you. What is it going to cost, and how long will it take?”
That was the beginning of building trust. I didn’t go in saying, “I don’t like EAW speakers or NSI dimmers.” I explained, with as many facts as possible that our PA was not designed nor installed correctly and as a result, most of the room was not being covered properly. I shared with him my findings, complete with pictures, that the dimmers were dangerously overloaded and were going to fail—soon.
This is God’s Money
Whenever we talk about church budgets, it’s important to remember where the money comes from. In truth, all the money is God’s, but He lets us use some. The money that comes in to the church bank account is given by the people of the church. They worked hard for that money and for many, it’s a sacrifice to give it. They are often doing without personally to give to the church. They give it with the expectation that it will be used to spread the Gospel more effectively and make an impact on their community and world.
This is why it’s so important that we spend it wisely. Every dollar should be considered carefully. This is not to say that you shouldn’t spend it, or even spend it on things that make your job easier. When I was new as a TD, I struggled with buying things that made my life easier. Eventually, I figured out that if I was more productive, more got done and I had more time to spend with volunteers. Or I just got to go home on time, which kept me from burning out. It’s a balance.
I told you that I had a spreadsheet that tracked every dollar spent from the tech account. About half-way through the year, I made an appointment with the accounting department to go through, line by line, and audit our expenses. Often, I found they had accidentally charged expenses to my account that should have been someone else’s. Occasionally, they found one or two I didn’t have in my sheet. Our finance guy told me I was the only department head to ever do that. He was surprised and thrilled I would take the time to do it.
During weekly meetings with my boss, he might ask me where were with the budget. Initially, he would say, when you get a chance, shoot me an email. But I could pull it up on my iPad and tell him to the penny where we were. I could tell him, “Well, we have 61% of the year left, and I’ve used 32% of my budget, so overall we’re good. Equipment is a little high, but that’s because we front-loaded some expenses for the summer when we were slower. That will drop off and of course, in a few moths, we’ll blow a bunch of rental.” That buys a lot of trust, especially when most of the department heads have no idea where they are.
Most finance guys don’t really care if you go over in one category as long as the overall budget comes in on target. So if you plan really well and do a good job of managing expenses, you might have some money left over at the end of the year. I used to use this surplus to accelerate my new equipment purchases.
Typically, with a few months remaining in the year, I’d look at my budget and see where I stood. If I had some funds left over in a category that wasn’t likely to be used up, I would check with finance and say, “Hey, can I move $6,000 over to equipment and get a few new things we were needing anyway?” Usually the answer was, “Sure, I don’t care, as long as you come in on budget for the year.”
I maintained a running list of things that needed to be replaced or purchased, and when there was extra money, I got that done. Sometimes, I was able to take advantage of a big sale or special deal to save even more. Always talk about the savings. You don’t have to beat up your suppliers (they get sick of that real quick), but when there is a deal to be had, take advantage of it. And tell your boss.
Each year, your actual expenses should get closer and closer to the budget. The first year you might be high or low, perhaps by a lot, because you didn’t know. Year two should be closer and by year three, you should be within a few hundred dollars of your budget numbers.
It’s important to not come in crazy-low with your actual spending. If you do, leadership will wonder if you just padded your budget like crazy because you don’t know what you’re doing or you just don’t care enough to figure it out. Getting more will be hard in the future if you do that.
I was routinely told that I was one of two or three department heads that came in right on budget each year. Do that for a few years, and you will get very few questions on your budget submission. Of course, you should have written rationalizations for why you are requesting what you are. Submitting that with the budget goes a long way toward convincing leadership you know what you’re dong.
OK, I just realized we didn’t talk about capital expenditures and end-of-life funds. Looks like we’ve got some fodder for next week!
Last time, we started to look at the various categories that make up a church tech budget. Today, we’ll consider how to come up with the amounts that should go in each category. Before we start, I want to acknowledge that not every church will have a real church tech budget. Many small churches struggle to get by each month, and the tech teams there just do the best they can. I get that. My first church was that way.
However, I would suggest that if production technology is at all important to the mission of the church, there should be some thought given to how it gets paid for. As individuals, we typically don’t reach financial goals without doing some planning. The same is true for organizations. Not having money to invest is not an excuse for not planning for retirement years. You still need a plan to get there. Start somewhere; anything is better than nothing.
Establishing the Budget
There are many ways to go about this. Some would suggest a flat percentage of the total budget, and I’ve heard percentages ranging from 1-5%. For a church that relies very heavily on production, that number might be even higher. For churches with very large budgets, the number might be lower. But that is a rough starting point. If you are using this method, you’ll typically be allotted an amount, and it’s up to you to spend wisely.
Personally, I’m not a huge fan of this as it can lead to government-style spending. “Well, I was given $50K and if I don’t spend it this year, my percentage will get cut next year, so I have to spend.” It might be a little less work, but I prefer need-based budgeting.
I’ve found that the needs for tech don’t always track flat every year. In other words, some years are rebuilding years, others are maintaining years. I would rather spend what I actually need each year, not whatever random amount was allocated. And for those who think it’s really hard to go from maintenance (a low spending year) to rebuilding (a high spending year), I can tell you it’s a lot easier when you do a great job tracking, maintaining and making a case for the need for new equipment. Take this advice—it’s more effective to ask for more when you’ve built trust. And you build trust by taking this very seriously.
Track Actual Expenses
When you come into a new church, hopefully they have some historical data you can look at to establish a baseline budget. In every situation I’ve been in, I started with previous budgets and always requested reports of actual expenses to start to see what it actually costs to run the department. Typically, I’ve been able to go in and make some tweaks right away that make things more efficient and thus more cost-effective.
Once you know what it costs to run the department, you can begin to assess what you need to upgrade and update. Unless you’re in a very special situation, you’re not going to get carte blanche to spend whatever you want to upgrade everything at once. You’ll need to develop a plan. I always attack major pain points first, trying to land some big wins right out of the gate. That builds credibility and makes it easier to keep getting more.
Best Guess, Mr. Sulu
Sometimes you don’t really know what your expenses will be. At that point, you have to take your best guess. For the equipment category, I added up the gear that I wanted to buy in the coming year, found some rough pricing on it, and used that as my budget line number. Supplies are similar; how many rolls of gaff tape might you need? How many batteries do you use a weekend, do some math and there’s your number. Of course, you should be using rechargeable batteries and that saves you a ton of money, but you need to buy chargers and batteries to start. How much will that cost?
For some categories, food for example, pick a number that seems reasonable for a month of taking your team out for lunch, coffee and bringing in snacks as needed. Multiply by 12 and you have it. Don’t go crazy with it, though, or it will look like you’re just trying to get your lunches paid for. I usually made do on $50-60 a month with my smallish team.
Sometimes it can be hard to guess how much gear you’ll rent for Christmas, especially when you have to submit your budget in March and you have no idea what the Christmas production needs will be. This is where historical data and just a gut check will come in handy. Still, it can be just a guess.
Getting It Wrong
Sometimes I hear from guys who are super-stressed out about getting their budget perfect. They are deathly afraid of under budgeting for something then going way over. Let me try to assuage those fears—it happens. Look, when you’re trying to come up with 12 months worth of repair spending, you have no real way of knowing what’s going to break. You’re not likely to get fired if something goes horribly wrong and you’re short on budget—that is if you can demonstrate that you did your best to get it right and you either A) just didn’t know the true costs of doing this or B) there were things out of your control.
For example, let’s say you buy a new bulb for your projector and it turns out to be defective. Not only is it defective, but it explodes inside the unit like a fragmentation grenade and destroys the LCD panel and half the cards. That might blow your entire budget, but it wasn’t your fault, and you had no way of knowing that would happen. It happens (it happened to a friend of mine). Remember the post I wrote a while back, Trust God and Do your Best.
There are no hard and fast rules for this as every church and situation is unique. Hopefully this gives you some guidance that will help you come up with your plan. As we continue on with this series, I’ll be stressing how important it is to pay attention to this and build trust. That cannot be overstated. More to come!