We see building projects all the time that have been hurriedly constructed to meet some envisioned purpose that were so expensive that it has caused these businesses to either fail or to financially burden the enterprise in such a manner that it substantially threatens its health and growth. Some of these building projects have been built by the lowest bidder and are either too costly to operate (ie: due to using the cheapest mechanical/electrical equipment) or are built to such a low standard of construction that the facility is literally failing around them. Many of you can point to defunct subdivisions or financially failing commercial buildings. They are all around us regardless of where we live.
It is our opinion that a majority of these enterprises could have been viable had their owners or managers spent sufficient time in planning and making financial projections as to their project's potential viability prior to initiating building construction programs. Money control is at the heart of any business. Financial matters impact almost every business decision. Too often owners and managers look at how much money they can budget toward a construction project without considering whether the business can generate enough cash to support the debt payment as well as the operating and maintenance costs that go along with the envisioned improvement.
Efficient financial management of a project involves making optimum use of resources. A cash-flow projection is an essential tool for ascertaining whether available financial resources can sustain the envisioned project and is also used for controlling cash expenditures. It is useful in forecasting, planning and identifying potential trouble areas. The projection shows the money coming into the business from a variety of sources including sales, and the money that goes out of the business as expenditures.
What information is included in a cash-flow project statement? First, the manner in which cash resources are generated (project financing) needs to be understood. Will you be obtaining a lump sum from your financing source or will they be paying in installments based upon your progress in completing your project? Will the project be partially funded by generated sales? There are all sorts of options and combinations of where cash is derived and where it will impact the income revenue stream. This is where the information and data generated by your market research study will be helpful. Demographic and sales data generated from such studies can be used to project cash generation to support your improvement program and continuing costs.
You will next need to understand the impact that expenditures will have on the construction program. Items that should be listed include the costs for the development of the marketing study; professional assistance that may be needed to complete a good cash-flow projection; legal assistance; costs associated with retaining engineers, architects, support consultants; building contractor; furnishings; equipment and machinery, etc. During the planning of your project your engineer and architect should be able to assist you in the creation of a Concept Plan or Schematic Drawings that show a general arrangement of the primary features of the project. From these plans an initial opinion of probable cost can be prepared which will provide you with some idea of anticipated costs that can be incorporated into your expenditure projections.
There may also be a time lag between when these expenditures are realized and when cash is generated. We have seen numerous projects delayed or work suspended because there was not sufficient cash on hand to meet the various financial obligations.
Capitalizing a building project requires advance cash planning. The Cash-Flow Projection or Proforma is the vehicle where cash management can be achieved to keep your project financially on target and to realize a project that is viable for many years to come. If you contact us we can provide you with a sample of a building related cash-flow projection.
There are many companies that can help you complete such studies. Should you need help in contacting such companies, we invite you to contact us. We promise that we will not "bug" you!
Text-based Table of Contents
Preparing a Vision of Your Project | Developing a Marketing Plan | Developing a Proforma
Sources of Project Financing | Project Phases | Wetland Delineation and Summary Report
Environmental Site Assessments | Permit Acquisition Process
Project Delivery Systems | Data Checklist
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