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Budget Documents/ Major Financial Issues
Budget Documents/ Major Financial Issues
by CRR Property Owner,
Dale Wiley
I was looking at the Budget documents for the Ranch and HOA and I think there is some major financial issues going on now. In other pages and threads I was personally attacked by a Budget Committee member and one has refused to answer my questions presented to them, even though the document says they will.
The numbers as presented show the Ranch operations and revenue / income centers are failing to bring in sufficient revenues to maintain suitable cash reserves, suitable net profits, take into consideration our inflationary economy, and to provide only a very small contribution to the Capital Reserve Fund.
In looking at the Ranch / HOA finances and in particular the Power point budget explanation, the document shows revenues across all centers of $ 3,184, 965 and expenses of $ 2,903,670 leaving a net profit of $ 162,653 or less than 5% of income / revenue. This is a terrible net profit amount to try and run a sustainable business operation on and with no indicated guidance on desired cash reserve levels. When our national economy is currently running a government published and very doubtful 7% CPI inflation rate, and a 21% Producer Price index that 5% net profit is going to vanish real fast. Even adding back in the $ 68,000 CRP contribution you still only bring your net profit back up to 8% less reserve of 3% and we are back to the 5% which will get smoked in the inflationary spiral we are in.
The Capital Reserve document also shows a scheduled Capital Reserve Plan payment out of $ 233,000 for 2022. We know that most CRPs in most business’s are seldom funded more than 65% or so, but it looks like there is no way they can fund a CRP contribution of any level and maintain even a 3% cash reserve level.
A 3% cash reserve of revenue would take $ 95,000 of that $ 162,653 leaving $ 67,653 for a CRP contribution or approximately 29% of the actual amount indicated on the document, leaving an unfunded liability of 71% or $ 165,347. The document also shows the Capital Reserve fund as an expenses item, which is possible if you are actually contributing to it. Still going to be taxed as income versus retained earnings. that way however.
All these ratios would indicate a possible cash flow issue pending or more likely in progress and really makes the concept of a CRP as merely window dressing. I really have to wonder if at any point the audit firm is questioning that lack of an suitable cash reserve. They really don’t care if you don’t contribute to your CRP, but having less than a 3% cash reserve for operations even without a indicated CRP contribution is going to be a difficult line to walk and if I was a controller or CFO that would have to be looked at and changed, and I would think an accounting auditing firm might be at least notifying the Ranch management that really a 5% net profit on revenues is completely unsustainable.
Capital Reserve funds and contributions have to come out of net profits on revenues. There is simply no other place it can come from. A business that cannot maintain at least a 3% to 5% of revenue cash reserve fund is playing with fire, and is one bad thing away from a major cash flow issue and a major operational compromise or issue. As we move through this year, we can expect these inflation rates to increase even more and that 5% net profit is going to be destroyed in this fiscal year. This is not business as usual with these kinds of inflation rates and input cost increases and instability. You need to be looking at all input cost increases on a monthly basis and have some kind of plan on increasing revenues by raising prices where you can on outside incomes such as golf, RV park, and trying to keep costs contained to the property owners so they are not continually having to be assessed additional fees to make up for the losses and underfunding allocations.
In order to save people the trouble of calling me an idiot and saying I don’t know what I am talking about, I will just call myself an idiot now and tell myself to go back and leave this stuff for the people on the committees and Board to deal with.
