Capital expenditure budget planning.
There have been many many lessons I have learned in my retirement community management journey over the last couple of decades but of the most important has been, taking a very planned and careful approach to capital expenditure budget planning.
It’s the only way to avoid the headaches and the potential of future embarrassment.
If you are under QLD legislation and need to abide by the Quantity Surveyor requirements or in NSW where the new Asset Management Plan legislation this will dictate some of these steps for you.
Whether you are preparing per contractual requirements of Capital Replacement Funds or internally for operator funding – we need to start early, being consultative and thorough to head off what can easily induce great pain!
This list of tips looks long, but much of it is common sense – but easily missed. When planning to review your Capital Expenditure budget consider:
- Consulting internal stakeholders – finance, development, senior managers to understand if they have “projects” that you are unaware of that may impact the budget
- Consulting the resident community – this could be via resident committees, feedback process, survey results, focus group morning teas. I know a couple of great organisations that hold a strategic planning morning with their residents every second year to gain clarity on where the residents see the village needs in five to 10 years.
- Undertake a thorough inspection of the village – if you are not confident in undertaking this process, consider the services of a quantity surveyor or building inspector to assist
- Review Contractor arrangements and suggestions for future works
- Check for new legislative requirements – not just Retirement Village Acts requirements
- Consider market trends and consumer expectations to ensure the village remains attractive and in good repair
- Allow enough time to get multiple quotes for projects
- Review the number of repairs carefully, especially in NSW, whether there are items that should be replaced
- Consider staging plan options for major works
- Check resident agreements and internal policy requirements
- Check lifespan specifications for major pieces of infrastructure
- Consider timelines: the requirements next 12 months, three to five years and five to 10 years
- Review time – once you have a draft budget completed – consult again – allow time and be prepared to do this a number of times
Capital expenditure in our sector has often been one of those ad hoc, non-focus areas of the business as the accountants often view it as a non return on investment.
However another great lesson is the better the village is maintained and the asset improved the happier the residents, the more referrals, the quicker the sales and the higher the price! Win win…