Sample of a Construction Cash Flow

Last week I discussed my Four Tips to Calculate an Interest Reserve. Realizing the importance of providing a visual example, I have provided a sample construction cash flow that I created in Microsoft Excel. The example is for a six-building construction project with staggered stages of development, and is populated with simulated data. If required, a larger version of the image is also available.

• The Monthly Draw section shows how much money is required for the project on a monthly basis. In January and February 2007, the customer is developing the work site, and the cost has been spread over all six buildings. In the proceeding four months, the construction will begin, and those costs are assigned to each individual building. The total of monthly draws sums up the total cost on a monthly basis.
• The Total Loan Outstanding section demonstrates how much of the construction loan has been borrowed on an accrual basis. The accrued construction line keeps a running total of construction costs after every month. This is calculated as the sum of all previous months, plus any new costs in the current month. The accrued construction costs are added to any non-construction costs (soft costs, acquisition costs, etc) to create the total loan outstanding. Interest is calculated on a monthly basis by multiplying the total loan outstanding and the projected interest rate; which in this case is 9.0%. It is important to note two things about the interest rate; it should be expressed as a decimal, and must be divided by 12 because it is being calculated on a monthly basis. In this example, an annual interest rate of 9.0% would be expressed as (0.09/12).
• The Rental Income section is used for any income generated by the property on a monthly basis while it is under construction. The section allows for gross rental income, any expenses that may be expected, and net rental income. Net income would be applied towards the monthly interest expense of the property, which reduces the required interest reserve. In this example, the property won’t be generating any income so it has been left blank.
• The Interest section further breaks out interest by expense category. In this example it is the acquisition, soft, and closing costs; which would be paid out immediately, and construction. Total interest should equal the earlier interest calculation.
• The Cash Flow Cushion / (Shortfall) is the difference between monthly interest and any income generated by the property.
• The Interest Reserve section keeps a running total of how much has been used, based on all of the aforementioned sections.

If interested further, please download the full construction cash flow.

Technorati Tags: Cash Flow, Construction, Interest Reserve

Posted on April 11th, 2007 | By: bootstrap economist | Filed under Banking

2 Responses to “Sample of a Construction Cash Flow”

1. Seneca, New York Says:
   July 8th, 2007 at 6:38 am

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2. The Bootstrap Economist :: Template: Excel Construction Cash Flow Says:
   October 9th, 2007 at 3:31 pm

   [...] I discussed my sample of a construction cash flow and have received requests for an excel file to use as a template. Attached below is the workbook [...]

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