One benefit of my last two and a half decades of church consulting is the opportunity to observe of hundreds and hundreds of churches going through and having gone through the building process. Building is a major endeavor that some churches do once in a generation. Others may undertake a large expansion or renovation project every several years. They all have one thing in common. It is imperative that the church is a good steward not only in the inception of the building process but also have a plan to retire the debt so it does not affect ministry budgets for years to come. After years of assisting churches, here are some all too common financial errors that churches make that can be avoided with good counsel and planning. Knowing what questions to ask at the outset is not only beneficial but essential.
The first financial error happens on the front-end and it is the reason why so many needed projects never get off the ground. Churches draw up plans based solely on need with consideration of budget after the fact. What is the ideal project scope for your church? Before drawing plans, look at your church’s cashflow abilities. Ask these questions. What size note can we easily afford in our monthly budget? Next look at your finance ability. How much can we borrow? Speak to your lender or confirm potential lending options to determine what can be financed. Additionally, a big piece that most churches forgo or underperform in is their ability to raise funds outside of the normal operating budget. Churches who choose to go it alone only see 1/3 to 1/2 of their potential due to inexperience in this area or lack of willingness to get help from an experienced partner. A good capital campaign consultant can help you cast vision and get your people excited about more than just a building but also the ministry impact that your church will see in the coming years through this step of faith. The church must determine the ideal project scope that accommodates its immediate needs. Overdrawing is a budget buster and will kill the project before it gets out of committee.
What are the real results of not counting the cost? The church may have to scale back on the project after the fact which is deflating to everyone involved including the church. In other cases, the church does not end up building at all even though there is a real and perceived need. Not being proactive in dealing with that perceived need can also affect church morale and momentum in your ministry. This is where churches plateau and can’t push past their growth ceiling.
The second less talked about financial error happens on the back end after the completion of construction when there is no plan for dealing with the long-term debt. Most churches are so focused on getting in the building and don’t consider long-term ramifications. Not having a plan to pay off debt can have so many unintended negative effects on the church. Carrying large debt can limit future expansion abilities. Over time this debt limits ministry budget. The line item on the budget is for debt and not ministry.
To illustrate, here are two unnamed churches and their real-life situations:
Church #1
Nearly 10 years ago, this church built a $7 million dollar building and did an in-house self-led capital campaign that greatly underperformed. In the years since, they have been paying the note, but the balance is still approximately $5 million. They are now in great need of a new expansion that is estimated at $10 million. Financing with that level of debt will be difficult if not impossible based on their size. If the church had conducted an effective first campaign and a second campaign for the remaining debt, the church could’ve easily been debt free 4 years ago. Now they will mostly likely need a debt campaign before they can consider any additional building.
Church #2
We developed a plan for this church to build everything they needed now and not phase the project. The plan was to conduct 2 consecutive capital campaigns. The first campaign was to get the construction going. The second campaign is designated to pay off the remaining debt. Currently, the church raised more than their goal and was able to delay their loan draw well into construction driving down interest payments. As I write this, they just moved into their new space and are starting their second campaign. If the church even raises half of what they did in the last campaign, they will be debt free in 3 years (only 6 years after undertaking a huge expansion). What a wonderful position for a church to be in! Since the church is moving into the new building, there is actually a great bit of momentum moving into the second campaign. Debt campaigns are successful especially if they are a means to an end.
Church #3
Additionally, let me share with you the story of Church #3. This church had the same plan as Church #2, but they communicated well and engaged the entire church. The plan we developed helped them raise so much that the Executive Pastor joyfully exclaimed that they will not need a second campaign. They built everything they needed and will be debt free in only three years.
My word of advice to avoid these pitfalls is twofold. First, proper planning is key and knowing what questions to ask is essential before you even start. Secondly, the building process can be a daunting one, but it can be made much smoother and easier with the right resource partners. A good church design build firm can help you work within a budget based on your needs through an initial assessment. A reputable lending partner can help you get your finances in order and understand how much you can qualify for. A relationship with an experienced church capital stewardship consultant can help you cast vision, create project enthusiasm and support, and engage the entire church in a greater, more significant way. An experienced campaign consultant can also help the church determine the ideal monetary project size and potential fundraising ability. A good start with the right resource partners can create momentum that churches benefit from for years to come.
