cash flow counts
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Cash Flow CountsA Planning Tool Often Overlooked
in a Building Program
Lettie Boggs, Colbi Technologiesleboggs@colbitech.com
Cynthia Martin, Alhambra Unified School Districtmartin_cynthia@ausd.us
Steven McGuckin, Capital Program Managementstevenm@capitalpm.com
● Budget vs. Cash Flow● Cash Flow Basics● Budgeting 101● Forecasting when Costs will be spent
● Forecasting when Funding will be available
● Putting it All Together – Cash Flow Tool
● Scenario Based Cash Flow Analysis
Avoiding Common Pitfalls
Talking Points
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Budget vs. Cash Flow
Budget – How MuchHow much funding do I have
How much will it costs
Cash Flow - WhenWhen will funding be available to spend?
When will costs be spent?
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NeedFunding
Availability
Cash Flow Basics
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BudgetFunding
Cash Flow
Cash Flow Basics
Cash Flow BasicsCash Flow Examples
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Cash Flow BasicsCash Flow Examples
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Cash Flow Basics
Reasons For Cash Flow Analysis• Determine best time to issue Bonds• Aide in prioritizing projects• Identify funding shortfall – need for bridge
financing• Progress Check – analysis of project pacing• Bond spend down plan analysis• Estimate interest earnings• Determine escalation costs
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Cash Flow BasicsFactors That Affect Cash Flow
When funding will be Available• Availability of State Funding
• Ability to pass new GO bonds
• Assessed valuation (AV) of real property in the District – Ability of the District to issue on its existing voter approved bonds
• Interest rate earned on facility fund balances
• Availability and terms of Bridge Financing
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Cash Flow BasicsFactors That Affect Cash Flow
When costs will be spent• Project Schedules
• Escalation (inflation) rates
• Accuracy of Budgets (both Projects and Program)
• Unforeseen conditions and availability of Project/Program reserves to cover them
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According to FCMAT, two reasons (out of 11) why schools fail are related to budgets*
Inadequate Budget Development–Failure to recognize year-to-year trends–Failure to maintain reserves–Flawed multi-year projections
Limited Budget Monitoring–Failure to reconcile ledgers–Poor cash flow analysis and reconciliation–Inadequate business systems and controls–Inattention to County Office of Education data–Failure to review management control reports
*FCMAT’s reasons referred to the general fund, but are applicable to facilities budgets, as well.
Budgeting 101
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Budgeting 101 – The Big PictureMASTER
PROGRAM BUDGET
ProgramLoss ReserveProject
Budgets
ProgramEscalation
Program-Wide Expenses
ProgramBalance
Project C, D, E...Project BProject A
FUNDING
A Site CostsB District and Agency CostsC Consultant CostsD Bid CostsE Construction CostsF Construction Support Costs
G Furniture & Equipment CostsH Miscellaneous Project CostsI Contingency Costs
A Site CostsB District and Agency CostsC Consultant CostsD Bid CostsE Construction CostsF Construction Support Costs
G Furniture & Equipment CostsH Miscellaneous Project CostsI Contingency Costs
Program-Wide Expenses
Program Escalation
Program Loss Reserve
Program Balance
MASTER PROGRAM BUDGET
FUNDING
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Budgeting 101 – The Big PictureMASTER
PROGRAM BUDGET
ProgramLoss ReserveProject
Budgets
ProgramEscalation
Program-Wide Expenses
ProgramBalance
Project C, D, E...Project BProject A
FUNDING
A Site CostsB District and Agency CostsC Consultant CostsD Bid CostsE Construction CostsF Construction Support Costs
G Furniture & Equipment CostsH Miscellaneous Project CostsI Contingency Costs
A Site CostsB District and Agency CostsC Consultant CostsD Bid CostsE Construction CostsF Construction Support Costs
G Furniture & Equipment CostsH Miscellaneous Project CostsI Contingency Costs
Project Budgets
A Site CostsB District and Agency CostsC Consultant CostsD Bid CostsE Construction CostsF Construction Support CostsG Furniture & Equipment CostsH Miscellaneous Project CostsI Contingency Costs
Project Budget: Approaches
• Begin with need or eligibility & establish the funding estimate
• Or, start with funding and define scope• Then, establish broad estimates for expenditures
through the use of a detailed Chart of Accounts
Common Pitfall: A detailed Chart of Accounts is not always used, so many important costs are missed
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Budgeting 101
Click to See Sample Detail List
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Hard Costs vs. Soft Costs
• A budget has three types of costs:
–Land Costs (site acquisition)–Hard Costs–Soft Costs
Land
Soft
Hard
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Budgeting 101
• What are hard costs?
They are the construction costs, usually 65 - 70% of the non-land funding
– Common Pitfall: This number is easily confused with 65 - 70% of the ENTIRE project funding
– The architect designs to the construction costs, not the entire project cost
• The other 30 - 35% are the soft costs & contingencies
– Common Pitfall: Not everyone budgets enough for soft costs
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Budgeting 101Hard Costs vs. Soft Costs
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Common Pitfalls
Budget Development• Don’t budget enough for soft costs• Don’t set aside a Program level reserve for
catastrophic events• Underestimate the need for project
contingencies• Don’t consider inflation – that projects will be
constructed over a period of time and there’s an associated cost with that time
• Underestimate project scope28
Budgeting 101
Budget Maintenance• Fail to gather information often and fail to
update budgets, so timely course corrections can be made
• Fail to have an accounting system that spans multiple years and multiple projects.
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Common PitfallsBudgeting 101
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Budget Big Picture• Fail to look at the big picture – the entire
program financial position (Master Program Budget)
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Common PitfallsBudgeting 101
• Project Schedule – Planning vs. Construction• Project Type influences timing of costs
- Typical ??? - 20% planning / 80% construction- Long Beach USD
• Major Construction: 8% / 92%• Portable Removal: 16% / 84%• Technology: 0% / 100%
• Escalation- Entire project, or not- Construction only- Escalate from date of last estimate to mid-point of construction
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Forecasting Costs
Single Phase 1
Multiple Phase
Small Project
Single Phase 2
Project Pacing - # Invoices
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• State Funding – Forecast or not to Forecast• Other guaranteed funding
- E-RATE- Prior Bond- Developer Fees- Other
• Interest earnings- Use County Rate- Be Conservative
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Forecasting Funding
The Cash Flow ToolPutting It All Together
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Cash Flow ToolPutting It All Together
Project Budgets and Expenditures
Cash Flow ToolPutting It All Together
Project Schedules
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Cash Flow ToolPutting It All Together
Cost Allocation
Cash Flow ToolPutting It All Together
Escalation
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Cash Flow ToolPutting It All Together
Escalation
Program Escalation
Cash Flow ToolPutting It All Together
Funding (other than current Bond Measure)
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Cash Flow ToolPutting It All Together
Funding – Bond Issuance Schedule
Determined by property values and ability to issue
Cash Flow ToolPutting It All Together
Fund Balances (Reconciled)
Important to reconcile fund balances to expenditures and funds received as of the “Expenditure Through Date”
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Cash Flow ToolScenario 1 – Cash Flow Report
Cash Flow Report
Balanced Program – Positive Cash Flow
Cash Flow ToolScenario 1 - Master Program Budget
Master Program Budget
Balanced Program – Positive Cash Flow
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Cash Flow ToolScenario 1 – Project Schedule
Cash Flow ToolScenario 1 – Bond Issuance Schedule
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Cash Flow BasicsScenario 1 – Cash Flow
Cash Flow ToolScenario 2 – Bond Issuance Changes
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Cash Flow BasicsScenario 2 – Cash Flow
Cash Flow ToolScenario 2 - Master Program Budget
Master Program Budget
Negative Program BalanceNegative Cash Flow
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Cash Flow ToolScenario 2 – Change Project Schedule
Cash Flow BasicsScenario 2 – Cash Flow
Fixed This
Quarter
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Cash Flow ToolScenario 2 - Master Program Budget
Master Program Budget
Negative Program BalanceNegative Cash Flow
Cash Flow ToolScenario 2 – Reduce Future Projects
Master Program Budget
Need to Reduce Budget ForFuture Projects To Bring
Program Back In Balance
Master Program Budget
Balanced Program – Positive Cash Flow
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Cash Flow BasicsScenario 2 – Cash Flow
Questions?
Thank you for attending.
C.A.S.H.34th Annual ConferenceSacramento, California
February 27, 2013
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