Development cash flow: get the timing right

Build the timeline from events

Start with acquisition, permissions, procurement, mobilisation, construction, completion and the final receipt. A phased scheme needs dates for each component and for shared infrastructure. Record dependencies explicitly: which milestone must occur before another phase can start, a facility can be drawn or a purchaser can complete?

Then choose a useful modelling interval. Monthly periods may expose gaps that a quarterly view hides, but the inputs must support that detail. Where a major payment and receipt fall in the same period, inspect their order. Netting them can conceal a temporary cash shortfall.

RICS describes development cash flows as period-by-period estimates of costs and revenue, with timing and projections stated explicitly. A phasing curve is therefore an assumption to examine, not a substitute for understanding the programme.

Sources: RICS: Valuation of development property, section 6.2

Keep progress, invoicing and payment separate

Work completed in June might be certified in July and paid in August. A reservation today might generate only a deposit, with the balance collected later. Build these movements from the relevant contract assumptions. Applying a progress percentage directly to cash can bring payments or receipts forward without justification.

For a construction package, document the contract value, progress profile, payment lag, any advance, retention and final settlement. For sales, distinguish units contracted from amounts collected. For rental income, distinguish physical completion, tenant occupation, any rent-free period and payment dates.

An original modelling exercise can begin with simple profiles. Replace them as project evidence improves, retaining a record of what changed. A curve that fitted the concept stage may no longer reflect procurement packages or revised handover dates.

Same total surplus, different funding requirement

The table shows an invented project in millions of one currency. It starts with zero cash, has no borrowing or equity contributions in the schedule, and excludes financing costs and tax. All movements are treated as occurring at quarter end. Costs total 25 million and collections total 30 million.

In the starting case, the lowest cumulative balance is negative 16 million at the end of Q3. Move 4 million of Q3 collections into Q4 and that balance becomes negative 20 million. The final surplus remains 5 million. The timing change alone increases the quarter-end funding gap by 4 million, or 25%.

Distinguish collected cash from available cash

A receipt does not always create immediately usable project cash. Restrictions can arise from contractual arrangements, account controls or local rules. Identify the applicable restriction and model the release mechanism separately. Avoid applying a rule from one jurisdiction or project to another without checking its scope.

Keep a reconciliation between total collections, any restricted balances and cash available to pay costs. This is especially useful when comparing a scheme funded by completed sales with one collecting instalments before delivery. Both can show the same final revenue while requiring different capital commitments.

For a GCC project, the relevant account and release arrangements should come from that project's documents and current local requirements. Currency labels alone do not make a generic cash flow model appropriate to a jurisdiction.

Add financing on a clearly defined basis

Keep an operating project cash flow that shows the underlying costs and receipts, then reconcile it to the chosen funding structure. Drawn debt is a source of cash but is not project revenue. Principal repayment is a financing movement. Fees, interest, equity contributions and distributions need their own treatment so the reviewer can follow the bridge.

The increased gap in the example does not prove a lender will advance another 4 million. Check remaining commitment, draw eligibility, required equity and repayment constraints. If the extra amount cannot be funded, the alternative programme may be undeliverable despite its positive final surplus.

Do not combine a project return before financing with a discount rate selected for a different cash flow basis. RICS' discussion of developer returns highlights the distinction between financing treatment and the return allowed for in an appraisal.

Sources: RICS: Approaches to developer returns in appraisals

Trace a delay through the affected assumptions

A three-month extension can mean several different things. Does procurement move, construction last longer, or handover happen later after construction is complete? Does the contractor price remain fixed? Do sales collections move with completion, and do any running costs continue? State the scenario before moving dates.

First isolate a timing-only case to understand the mechanism. Then build a linked case containing the additional costs and receipt changes that have an evidence-based connection to the delay. Keep unaffected assumptions fixed so the comparison remains interpretable. A universal shift of every line can accidentally defer a land payment already made.

Review the maximum deficit, when it occurs, how long capital stays committed and the return on the relevant basis. Explain which contractual or operational change would reduce the exposure, rather than reporting only the new IRR.

Reconcile the schedule before presenting it

A useful review starts with the totals but continues through the timeline. Check that the schedule reaches final settlement, including late receipts and remaining obligations. Freeze the programme and input revision used for the comparison so the result can be reproduced when a new estimate arrives.

• Do phased costs reconcile to the approved cost schedule?
• Do contracted sales, collections and remaining receivables reconcile?
• Are payment lags, retention and restricted cash visible?
• Does every negative cash balance have an identified funding source?
• Have intraperiod payment orders been checked around the tightest dates?