Replacement Fund

A monetary fund which is gradually build up over a planned period of time to replace an asset once it has reached the end of its serviceable life. Replacement funds are often utilised for the future purchase of a capital item.

A common example within the grounds care industry is that of replacing artificial carpets on sports pitches. A typical life expectancy for a synthetic carpet with infill material might be 8 to 10 years, depending on planned usage, effectiveness of maintenance, as well as environmental conditions at the site. When a new surface has been installed the future replacement of the carpet needs to be considered due to the very high cost of these carpets.

If at the time of opening for a new pitch, the anticipated future cost of replacement is estimated to be £200,000 (although this figure would be adjusted in the intervening years if the cost is revised upwards, especially due to inflation etc.), then suitable funds need to be saved and invested for the future event of replacing the surface and possibly the sub-surface.

If the asset was planned for an 8-year replacement, then £25,000 from operating income would need to be planned to be invested into the replacement fund per year (with adjustments for inflation etc.). If there is a shortfall in funds for the replacement when it is due, then additional monies might be needed. This will be strongly dependent on how the surface was wearing and if it was still producing a satisfactory playing experience to the desired standards. If this was the case, then there would be the opportunity of one or more additional (bonus) years of potential investment to contribute to the replacement fund to hopefully make up the shortfall. Where a surface wears quicker than planned then this could have serious consequences for any potential carpet replacement as significant additional funds would be needed.