Financial Business Plans – Key Issues for Review

At this time of year, most housing organisations will have completed and approved their budgets for 2011/12. Reviewing and updating the long-term financial models, which underpin their business plans, will normally follow. This provides executives, boards and regulators with a view about the organisation’s financial position into the future and the main risks to its financial health.

If you are involved in this process, either updating the model or considering the results, then you may want to consider the following key issues:

  • Economic assumptions – have you recently reviewed your assumptions on RPI and CPI based on the Bank of England’s forecast advice?
  • What about the link with all types of cost inflation?
  • Treasury assumptions – interest rates are still historically low but are predicted to rise gradually over the next year. What assumptions are you using for variable interest loans throughout your plan
  • Rental assumptions – how will the introduction of the current benefit reforms impact on your rent arrears and also on voids levels for stock with rents higher than benefit caps?
  • Reduction in grant – have you reflected the indications from government and the HCA that grant levels for social rent will fall dramatically and be non-existent for shared ownership?
  • Loan covenants – with lower grant levels into the future, more of the funding for new homes will be borrowing, thus gradually increasing gearing ratio levels. How do your predicted levels compare to those covenants agreed with your lenders? Will the introduction of
  • International Financial Reporting Standards in 2014/15 impact your covenant compliance and if so is this modelled in the plan?
  • Affordable rents – have you adapted your plan to include this new type of tenure. Development departments will be running feasibilities for affordable housing – have you agreed the corporate assumptions for this?
  • Pensions – will Lord Hutton’s recent report into public sector pensions impact on the provision that the wider housing sector want to make available to its employees?
  • Component accounting – is already recommended in the current Housing Association SORP but will be required for accounting periods ended 31 March 2012. Are you correctly reflecting its impact on your assets and depreciation within your plan?
  • Supporting People funding – with many authorities passing on 10% cuts this year and further cuts predicted have you properly reflected funding and changes to services?

Happy forecasting…

Susan Kane is a Partner at Altair