Deferred Maintenance: Planning and Setting Up a Capital Fund

Deferred maintenance: projects to keep up your commercial property that still have not been completed. It’s time to recommit to making your property look excellent and perform in peak condition.

Do you have deferred maintenance projects? What’s the best path forwards?

How to Make a Plan for Deferred Maintenance:

• First of all, understand your motivation: A property that is in good working order, that looks good cosmetically and operates appropriately reflects well on you as a business owner. This is important if you are ever looking to refinance or sell. In addition, guests and customers notice when their environment is looking tired. This affects word of mouth reputation about your business and can even show up in online reviews.

• Deferred maintenance may be allowing small problems to get worse: If you have experienced, for instance, small water damage and were just waiting for the right time to tackle these repairs, stop delaying. Appraisers and customers can easily spot water damage and it is an obvious sign of neglect. Further, water damage can cause serious issues beyond cosmetic ones.

• Consider Other Upgrades: Change out plumbing and fixtures, upgrade furniture and replace soft packages (linens, bedding, curtains) as well as larger, more extensive renovations.

• Create a detailed plan: First ask yourself if money were no object, what you would do to improve your property. Then figure out which of these items you can afford and which items retain or add the most value. Next, determine how long each project would last.

• Prioritize and Act: Create a calendar with all scheduled future maintenance, keeping notes on the budget and the timeline to complete each component. You know your property best. Work around its high and low seasons to determine the best timeline. Line up your contractors and workers and get to work!

Secure Good Advice: 

• Consult your franchise service director, if applicable.  Your franchise representative (if you have one) will help you prioritize and will understand what other business owners like you face. Ask for a site visit.  Specifically ask which projects have the greatest return on capital.

• Confer with your network. Arrange for a trusted owner of a business like yours for their advice.

• Contact GRP Capital.  We are happy to look at your financial statements and discuss what your business needs are. We can help you determine some of the best options to go forward.

Building Funds for CapEx and Utilizing them:

If you were in the position to have a Capital Expenditures (CapEx) fund prior to the pandemic, it’s time to start spending that fund. While you may have been focusing only on debt service and minimizing operating expenses from 2020 until now, you can now change gears.

If you have never set aside monies for CapEx, start now. We recommend designating 4% of your budget for CapEx. Further, we recommend setting aside money in a segregated fund, so that you can build up this nest egg and use it. These funds will be included in your balance sheet as an asset until you spend it.

If you are considering a loan for purchase or refinance and would like to discuss your plans for project maintenance or developing a CapEx budget and timeline, feel free to contact our team.