Financial forecasting
Ten tips on business plan modelling for housing organisations using Brixx
FINANCE
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Phil Newsam
Senior Associate Consultant, Campbell Tickell
Issue 64 | February 2023
Campbell Tickell has worked with more than 50 organisations to prepare or validate their business plan models. We are a partner in the use of the Brixx financial modelling approach, which we have used to effectively support many of our clients. Based on our experience, here is some practical guidance and tips for modelling business plans using Brixx.
01
Plan ahead: set up a timetable that details what you need and who will provide it. Include time for modelling, reconciliations, internal review, stress testing and, reporting to the executive team and the board. Make sure everyone knows what they are to provide and by when.
02
Start from what you know: the approved budget, the opening balance sheet, the loans register as at March/start of your financial year, units as per the Statistical Data Return (SDR) to the regulator, the asset management system, etc. Make sure the final output is aligned to these within a reasonable tolerance. If there are differences, provide an explanation to the regulator when you upload the Financial Forecast Return (FFR).
03
Use Brixx functionality as much as possible: for instance interest calculations and non-utilisation fees. Where possible, model variable costs for each of your main property tenures in terms of cost per unit so that these reduce if you have any property disposals.
04
If you are modelling intended savings, put these in separate objects so they are visible and you can easily dis-enable them. Use the comments box to provide notes on the object and any different assumptions such as inflation.
05
When you change an object, look at the reports to make sure it is doing what you want it to do. This will be important in modelling the 7% rent increase cap in England for 2023/24. The local inflation object can be used to model stock where the rent cap does not apply.
06
Keep a running total of the impact of your main changes on the key metrics – maybe year one surplus, year two surplus and closing cash or loans.
07
Take care around year-end timing differences on development handovers, if these are material. If the units are already in your opening balances, select this as an option in your development scheme object so that units and rents are not added again. For shared ownership developments, you can model a sales profile of units that have already been handed over.
08
Write a Brixx report to do your loan covenant calculations and headroom on each. But be aware that this is not possible for covenants where the gearing ratio does not allow inclusion of properties under construction, or to check the average of interest cover over three years.
09
Before you finish, turn off inflation and drill down in the reports to see whether the results are what you expect.
10
Once you have a base case that the board has approved, save it as the approved base case and purge history, so that it’s easy to spot any changes since approval.
Most importantly, make sure you give yourself plenty of time to check your model. The impact of the rent cap in England, with costs increasing faster than income, is likely to take you closer to your loan covenants and golden rules. You will need to check that your plan stacks up and is deliverable.
“The impact of the rent cap in England is likely to take you closer to your loan covenants and golden rules.”
