Asset Replacement for Major Repairs

Asset Replacement for Major Repairs

Saturday, March 24, 2018

Hey Fletch … Do you know of or have an Asset Replacement Policy that sets aside money for major repairs/replacement of systems like HVAC?  I have not been an XP in a place where I could actually establish such a practice, but am going to try it at my new church.

DRF—There are a couple of ways to go with this and I applaud you doing it. This is great thinking for the future. One way is to do a complete list of all depreciable items on the campus, everything above $2,000. That includes computers, cameras, sound boards, routers, servers, vehicles, video projectors, roofs, HVAC units and even entire buildings. Let’s say that list comes to $20 million. Then, you set aside the 3, 5, 10, 20 or 30 year depreciation amount on those items—that is what depreciation is really supposed to do. Let’s assume an average of a 20-year life on all those items. You would need to set aside $400,000 a year. That’s a big bite!

The “all items” option is time consuming and you will list many small items. In a church, major building refurbishments or construction are generally handled as capital campaigns. That skews your depreciation list.

My preference has been to establish two reserve funds. These are internally restricted by the Governing Board of your church. As internally restricted, the Board can use the money for other purposes if there is an emergency or if an account gets overfunded. One fund is for Information Technology expenses—video projectors, computer servers, sound boards, etc. The other fund is for Facility Repair—new roofs, HVAC units, minor renovations, vehicle replacements. Depending on the size of your budget, you can determine how much to put into these reserve accounts. If you save $100,000 a year, in four years you may have enough cash to pay for a new worship center roof.

The key to estimating how much to put into the reserves is to have a spreadsheet of the major items and the timeline of their probable life. For example: Worship Center roof, 5 years remaining; Children’s Building roof; 20 years remaining; video projectors in Worship Center, 3 years remaining; campus HVAC main unit, 10 years remaining. Then consider the replacement cost and divide by how many years until you will most likely have of usable life of the items.

The great thing about this is that if you get an extra 5 years out of a roof, you keep the cash in the bank. My favorite illustration of this is the expensive video projectors in worship centers. You never know how long they will last and new technology is always just around the corner. By having the cash in the bank, you can wait until you are ready to replace them. Believe it or not, it is harder to spend cash than a loan—there is something about cash that says, ‘Wait, don’t spend it yet, it took us a while to save this much.’

2018-07-13T15:03:08+00:00By |Fletch Ops, Hey Fletch|

About the Author:

For over 35 years, David has served churches from 1,000 to 8,000 members. As well as being a pastor, David is a spiritual entrepreneur. He founded XPastor as a global ministry tool for leaders of churches of all sizes. XPastor provides a website, an XP-Newsletter, the annual XP-Seminar, workshops, and online courses.

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