1. Monthly Lot/Unit Closing Projections
When utilizing cash flow budgets, it is critical that closing projections are as accurate as possible. When a community is operating in a shortfall/subsidy mode, the timing of closings can greatly impact the flow of assessment income, working capital fees and/or reserve contributions. If the closing projections are too aggressive, the budget may project a lower shortfall/subsidy than is actually needed. This can sometimes result in our client’s needing to write a check.
If the closings projections are not aggressive enough, the shortfall/subsidy may be greatly reduced (always a good thing!), but the timing to start transition committees and/or schedule a transition meeting may be off.
We encourage these items to be considered when providing us your lot/unit closing projections.
2. Landscape and Amenity Turnover Projections
In all new communities, the landscape and amenities will eventually be turned over to the HOA for maintenance. The turnover process is finalized once an inspection is completed, at which time the Association will become responsible for the utilities, maintenance and vendor contracts. Our Developer Services Team will project these expenses in the cash flow budget. If the timing of the turnover is not accurate, it can cause substantial budgeting discrepancies. In this case, being less aggressive is advisable to being too aggressive. If we plan for a community center in March but don’t take it over until May, we will have not spent money that was budgeted and will have the funds necessary to pay these expenses.
Reversely, if it is taken on sooner than budgeted, an additional unbudgeted subsidy may be necessary.
3. Review Staffing
If your community plans to include employing staff, it is important to consider the need to add additional staffing as the community grows. If closings are happening faster than projected, you may need to hire additional staffing sooner than originally forecasted. Additionally, if the community has seasonal residents, it may be helpful to be flexible with staffing so that in peak months there is staff to cover the needs of the community by utilizing seasonal and part-time employees.
4. Review the Reserve Budget and Funding Level
With all communities, we will create a Reserve Budget each year along with the Operating Budget. If the community has a reserve study, we prefer to use the study’s recommendation for the annual contribution and the expenditures. We may also suggest a reduction in the recommended contribution if the Reserve Account is growing faster than projected. This often happens when Reserve Fund Fees are collected with each home closing and closings are exceeding projections. In this case, we may reduce the contribution from th Operating Budget, which in turn reduces shortfall/subsidy. The main goal is to provide a well-funded community to the homeowner Board at the time of Board transition.
5. Set Realistic Assessments and Have a Plan to Reach It
We understand the importance of creating a Cash-Flow to Build-Out budget that puts a realistic plan in place, so the community can gradually reach the Built-Out Assessment amount. By providing the information requested above each year, we can provide our clients a with tool that can be adjusted as may be needed throughout the year. We share the common goal with our clients, which is to minimize subsidies and reduce the impact of an assessment increase to the homeowners at the time of Board turnover.