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REPLACEMENT RESERVE STUDIES- AN INVALUABLE TOOL


​A replacement plan can be an invaluable tool to an organization or business looking for long-term budgeting guidance with respects to building and equipment costs. Replacement plans can be particularly useful to organizations that rely on volunteers and donations for their operations.

Nonprofit

Nonprofit organization's often have volunteers and require significant contributions from donors to maintain operations. A replacement plan is an excellent tool to show these donors exactly the long term cost associated with the operations with respects to the often overlooked building, site  and equipment costs. These expenditures are often overlooked as they are often infrequent and not in the long-term outlook of many staff and volunteers who may only be part of the organization for a relatively short period of time. A replacement plan is a tool that can be utilized over a long period of time for many volunteers and staff as an accurate and reliable budgeting tool that can be utilized for many years.

 

Commercial

A replacement plan can equally be utilized for for-profit organizations and commercial applications. Successful businesses must take into account the real cost of operating; this would include repair and replacement of building components such as roofing, siding, windows, HVAC units, etc. We are often contacted to complete replacement plans for commercial condominiums, warehouses, apartments and commercial buildings of all types. All of these have components of the building and the site such as asphalt, signage and landscaping which overtime will deteriorate and require repair or replacement.

 

The aesthetic appeal of a site and building is specifically important for commercial aspects as there are generally tenants and consumers which will be viewing them on a daily basis. A thorough replacement plan study will provide the client an accurate assessment of the costs and will take into account their specific goals with regards their long term budgeting goals. The replacement plan study is catered to the client's goals and is an excellent tool to help maintain and increase the overall appeal of a building and site.

 

Additionally it has been our experience that a replacement plan is a great tool for financing purposes. As lenders have become more savvy and restrictive on their lending conditions to businesses they have asked questions about the real cost of operating the business and not just the revenue generated over a period of time. Providing a replacement plan to the Lender during the lending process for a business loan or a commercial building purchase / refinance is an additional tool that can be provided to ease the process and show the lender that all costs have been taken into consideration.

 

Equipment

Equipment costs are often infrequent but extremely costly to an organization. A replacement plan​ provides a timeline of costs and dates when organization can expect to see these expenditures arise so that accounts can be created well in advance and funded for so that cost can overall be minimized (accruing interest) and reliance on a future loan can be minimized. Having a reserve account set up for equipment failure helps to minimize the possibility of equipment failure with no funds available for the replacement or repair of the item which could essentially stop a business in its tracks.

 

Written by Joel L Tax - Professional Reserve Analyst - 04/15/2016