I wonder how many ministries had to replace their air conditioning systems during this summer of record-breaking heat. Maybe yours is one of them.
Did you have enough liquid funds to cover that expense, or did you have to come up with those funds another way? Maybe a special fundraising effort, a loan from your financial institution, or “borrowing” funds from another area of ministry?
Even if we do all the scheduled maintenance, things like AC systems and roofs and parking lots and carpeting eventually need to be repaired or replaced. Unfortunately, these expenses create an emergency for many ministry organizations because they don’t have funds set aside for them.
This is why you need a replacement reserve fund. It’s simply good stewardship of capital assets to have an account that’s specifically earmarked for the upkeep of your property, building, and contents.
Are you unsure how to calculate the appropriate replacement reserves? Here’s a good starting point:
- List all the items your ministry must maintain or eventually replace.
- Identify how long each item was expected to last when it was new (useful life in years).
- Determine the remaining life of each item (again in years).
- Determine how much it would cost to replace each item today.
By conducting this type of inventory, you can calculate how much should be in your replacement reserve fund today and how much to add to it each year. Better yet, you’ll avoid jeopardizing important ministry to pay for unexpected facilities expenses.
Need some help? We created a replacement reserves calculator tool that performs these calculations for you. (There’s no charge to use it.)
Have unexpected facilities expenses negatively impacted your ministry? Or have you been able to avoid situations like that because you have had a replacement reserve fund? Post a comment and tell us your story.