How do you handle large purchases?

How do you guys fund large purchases? I’m allocated an annual budget but I can’t roll any of that money into a designated fund. This is usually ok for most things, but it makes it difficult to purchase large items or get multi-year discounts on licensing.

Have any of you been able to convince your finance teams to somehow allow you to save up for large purchases? Any other suggestions?


Most of the churches I work with need to do a Capital Budget Request for large equipment expenses. This ensures the asset is appropriately scrutinized, managed and depreciated off the books. It also means that the asset can be counted as, well, an asset rather than just an expense.

As Alex alluded, a capital expense is the common method. This usually requires a discussion with leadership and/or elders.

Commonly, the complication of this one isn’t worth the trouble for churches… and no matter what you do licensing is never truly an asset, so what you’ll find is that the multi-year discounted license is expensed in year-one, and earmarked as a reminder year-over-year until it must be renewed.

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Yes, purchased as capital. Now a few tips to help this work for you.

Computers and high dollar networking equipment should generally be purchased as capital and then expensed over several years (5-7 years is typical). You should track what is purchased as capital. When submitting new capital items I remind leadership that it is a capital purchase and give them the current year expense cost and/or better the net effect this is going to have on depreciation expense this year versus last year. Because previously purchased capital items eventually fully depreciate you’ve got stuff coming off the depreciation schedule to net against.

A couple simple examples.

You purchased 3 computers 5 years ago for a total of $2,500 and depreciated them over 5 years. Now you want to replace them at a cost of $3,000. Because the old units are fully depreciated there is a $500 per year depreciation expense coming off the books. The new computers will add $600 per year to the depreciation expense. So the net change in expenses for the first year is $100. If the replacements cost $2,500 there would be no change to depreciation expenses.

I think you can see how this makes it much easier for leadership to say “yes” to these kind of purchases.

Also, several asset management/tracking tools can handle providing depreciation schedules / reports so you don’t have to manually generate those and Accounting will be much happier if they don’t have their own fixed-assets type tracking tool.

We have a separate “Fixed asset reserve” account that falls outside the operating budget and gets rolled over from year to year. Then we budget a monthly amount that’s journal transferred from the operating budget to the reserve. Small routine purchases - no set amount, but typically under $40k-ish get charged to the operating budget. A large purchase like major network equipment or a SAN, for example gets charged all or part to the reserve, which is this replenished by the monthly transfers over the last couple of years.

What this does is limit large operating budget fluctuations. For example, something like a SAN upgrade which occurs infrequently, but may cost $75k would not cause the budget to have a big increase that year. More routine stuff, like desktop, laptop, and server replacements are just part of the normal operating budget.

Mark, I’m not sure I understand how depreciation affects the budget? Yes, you could capitalize and depreciate certain items, but this is more a tax thing (assuming you pay income tax, most churches do not). If you make a $10k purchase in 2017, you still spent $10k regardless in 2017 regardless of if it’s capitalized or expensed on the back end.

Your finance people will definitely understand the difference, for we non-finance types it can be more difficult, but let me give it a try.

In the finance world cash and expenses are not the same thing. If you buy a firewall for $4,000 that’s how much comes out of your bank account, but only $1,000 is expensed for the first year (assuming a 4 year amortization). This is much more than a tax thing. Church departments that deal in high cost equipment like IT and Facilities will have considerable ups and downs from year to year. This does not work well in a church setting where donations year-to-year stay relatively constant, and tend to get used each year (little to no carry over). So capitalizing items smooths the budget each year.

It may not be immediately apparent but in those years after the year you purchased a device cash is getting set aside for when you need to replace the device. You are expensing $1000 after the first year, but not actually spending any cash on the item after year 1. So in year 5, you’d have accumulated $3,000 in cash (the difference between expense and cash spent in years 2-4) with another $1,000 of cash in year 5 you’d have enough cash accumulated to replace the firewall.

Now all I’ve written assumes your church is on an accrual accounting system. Some churches are still on cash accounting. If your church is one of them, then you have to create a fund for your high dollar items. It’s not as elegant or has all the advantages you get with accrual accounting, but does allow you to set aside the cash necessary to replace high dollar items.

I’m sorry, but that is incorrect. If I buy a $4000 firewall and turn in a check request, as soon as that check is written and deposited, that $4000 is no longer in our bank account. It doesn’t get spread over 4 years just because we track depreciation. We DO track depreciation, but it’s for calculating total value of assets for our financial statements, it doesn’t affect cash flow in any way at all.

When you ask for help and someone shares their expertise, if their input does not make sense to you the appropriate response is “I don’t understand”, not “that is incorrect”.

Mark, I’m sorry if my reply offended you. I would like to point out that I was not the one who asked for help, I was simply pointing out that the info in one of the replies was not correct information.

Just to clarify - the only way to truly spread the cash flow over multiple years is to either lease or finance the purchase. Capitalizing an expense and tracking depreciation has no impact on the budget or cash flow in a tax-exempt organization. The full expense of the item still hits the budget and the cash leaves the bank account when it’s purchased. Even in a for-profit business, the cash still leaves immediately, the only difference is the deduction for income tax purposes is spread over the life of the equipment vs being taken all at once.

Ditto what @jeremyhoff said. Capital Expense for really large purchases and usually I have to project out a couple years and let my boss know what’s coming down the road.
For some licensing, if I can get a big multi-year discount like anti-virus, I do just purchase it all at once. In my budget spreadsheet (going back to 2003), I have all my renewal dates listed so I can adjust for upcoming renewals.

I'm not sure I understand how depreciation affects the budget?

Depreciation is an expense to the balance sheet. If you don’t budget for it, then you accept the loss somewhere else.

When it comes to financing, banks like tidy Balance Sheet reports that include FA.