How to Develop a Capital Improvement Plan for Your Building. Five Steps for Success
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Here’s the thing about capital improvement expenses: they’re going to happen. If your business has a brick and mortar location, at some point, changes and updates will be needed to improve the value or life of your property.
If you’re not prepared, these expenses can be tough to manage, but with the right capital improvement plan in place, you can plan for the funding. If you’ve never created a capital improvement plan before, don’t worry. Here are five basic steps for a successful plan:
Step 1: Think Ahead
When you look at your building, what do you see that is likely to need replacing, upgrading, or renovating in the not-too-distant future? Look at the age of all your major systems and structures—HVAC, plumbing, IT, parking garages or lots, etc.—and research when it’s recommended that these things be updated or replaced. Create an outline of these assets and when they will likely require capital funds.
Step 2: Crunch the numbers
Get ballpark estimates for each item on the list to create a basic understanding of your annual capital expenditures. You can do that by researching average costs for similar products or projects in your area. Partner this information with things that could impact your business’ financial future like your business projections, and the current trends in your market. With costs and potential impacts in mind, you can begin to plan out the funding your plan—whether through cash reserves, profits or from a lender.
Step 3: Be Prepared to Contribute
Once you have a capital improvement plan in place, your next step is to plan for funding the plan. Build strategies to save for capital expenses so that in the event outside funding is required, you have the ability to provide a down payment or make a contribution. This not only makes you a more attractive borrower, it lowers the amount you’ll need to borrow.
Step 4: Plan for Contingencies
If you do decide to borrow, don’t assume that a smaller budget for your capital improvement plan will make it easier to get funding. Think through your best and worst case scenarios. Lenders like to see that you’ve planned for contingencies, so if you’re looking to replace a roof for $45,000, budget for $50,000. It’s just good planning, and will help you be prepared for the unexpected.
Step 5: Keep it Simple.
The better prepared you are, the better your plan will look. As you get closer to talking to your lender, get written estimates for the items or work you’re planning. Anticipate questions that you’ll be asked when you present this plan to a lender. While it’s definitely good to be detailed, for the most part, a capital improvement plan is about numbers and calculations. You don’t necessarily need fancy charts to prove that you’re well-prepared, so keep it simple by preparing answers to the questions a lender will likely ask about your plan.
Kennebunk Savings has an array of options to help you and your business. We are here to answer your questions and think through the options that would be the best fit for your needs. If you’re ready for a conversation, reach out to us at 1-800-339-6573.