Marina Dock Age, January/February 1997

Create an Available Reserve for Repair, Replacement Cost
by Dennis P. Kissman

This is the time of year when thoughts turn toward the coming summer boating season and what that will mean to the year’s profitability. It also means that we must assess wear and tear from the past year and then look at the cost of putting the marina back in shape for the coming season.

Many marina owners subscribe to the old adage that if it’s not broken, don’t fix it. This philosophy may work in some businesses, but in a marina it could put you out of business. Typically, marina facilities deteriorate over time. Oftentimes, owners tend to ignore this gradual decline and learn to live with the problems it creates.  

This brings us to a common subject that is not frequently addressed in a serious manner: how to establish a replacement reserve for those deteriorating assets. The key to establishing a replacement reserve is to make it part of your normal course of business. One way that works is viewing the annual replacement reserve amount as if it were an insurance premium. The next question is how to establish the amount of the premium since there are no guidelines on the subject.

As you know, many marina improvements are subjected to harsh environmental conditions to a far greater degree than most other businesses. The effect often shortens the useful life of the asset and increases the annual maintenance cost.  

To properly account for this cost, an accurate assessment of the useful life of each asset as it relates to the local conditions at the specific marina, along with its estimated current replacement value, should be made on an annual basis. Notice that the useful life is based on "local conditions," not what the IRS may set as the useful lives of depreciable assets for tax purposes. Continue »