RealTorch / Field Guide / Finance
08 / 15 The 15 Functions of a Homebuilding Company
Finance for Home Builders
Finance turns the operating plan and the closed books into a month-by-month view of cash and capital.
“Finance looks forward and Accounting looks backward.”
At a glance.
- What this function decides
- Finance decides how much capital the company can commit and how it should fund that work. It sets minimum cash, inventory and start budgets, lender and investor plans, guarantee limits, forecast triggers, and the timing of major commitments.
- What you need to know
- Start with closed accounting results, cash, receivables, payables, debt, commitments, and cost to complete. Add land and start plans, draw and closing schedules, product and pricing assumptions, expected sales pace, lender terms, covenants, guarantees, equity commitments, and the company's other projects.
- What good work produces
- The result is a month-by-month cash and capital model with a source for every important input. It separates actual, committed, forecast, and assumed values. It shows each scenario, the highest cash need, available borrowing room, covenant room, minimum cash, and the point when leadership must act.
A worked example.
The spec decision is tested month by month against cost-to-complete, draw timing, closing dates, lender covenants, company policy, and local absorption.
Atlas
We are deciding whether to authorize eight spring specs. Build a monthly liquidity model through June from home-level cost-to-complete, draws, closings, commitments, facility rules, and our $750,000 cash floor. Ground timing in our spec history and current local absorption. Compare four, five, and eight in the base case and with sales one month slower and builds 20 days longer. Show each cash scenario separately. Do not collapse the cases into an expected-value average. Define facility use, funding gap, and minimum cash. What can we approve now, and what input could change the call?
Tools and sources used
File Retrieval5+
Atlas gathered cash, commitments, cost-to-complete, starts, draws, closings, lender terms, and closed-spec history.
- Used
- Atlas used Spec_Cost_to_Complete.xlsx, Starts_Draws_and_Closings.xlsx, Cash_Commitments_and_Forecast.xlsx, Facility_Borrowing_Base_and_Covenants.pdf, and Closed_Spec_History_24mo.xlsx.
- Did
- Retrieved the five named cash, home-level, facility, and spec-history sources into the working context.
- Supports
- These files provide the company inputs for monthly draws, proceeds, available funding, covenant checks, and the $750,000 floor.
Community Market Research+
Atlas reviewed current supply, pricing, and observed sales pace in competing communities.
- Used
- Atlas used nearby communities that sell comparable new homes in covered markets.
- Did
- Checked whether the company's base sales timing ignored visible competitive inventory.
- Supports
- The decision to include a slower-sales case in the model.
Listing Market Research+
Atlas reviewed active, pending, and recent closed homes that compete with the standing specs.
- Used
- Atlas used comparable inventory in the same price and product range.
- Did
- Tested the reasonableness of company sales assumptions against current alternatives available to buyers.
- Supports
- This research supports the sales pace used in the scenarios.
Builder Knowledge Lookup+
Atlas reviewed its homebuilding finance guidance for monthly cash, separate scenarios, minimum cash, lender terms, and decision triggers.
- Used
- Atlas used Function 08: Finance.
- Did
- Built each cash scenario separately, applied the facility and minimum-cash limits, and found the month when each limit is reached.
- Supports
- This guidance supports the recommendation, the $10,000 cushion, and the decision trigger for a fifth spec.
Running Analysis+
Atlas calculated separate monthly base and downside scenarios for four, five, and eight specs.
- Used
- Atlas used home-level draws and proceeds, current market information, available credit, covenants, and company policy.
- Did
- Shifted closings and draws, capped facility use, calculated minimum cash and separate funding gaps, identified the sensitive closing, and generated the XLSX model and PNG chart.
- Supports
- The analysis supports the $10,000 cushion, $290,000 floor shortfall, $1.40 million and $2.10 million funding gaps, Spec_Liquidity_Model.xlsx, and Downside_working_capital.png.
Saving File2+
Atlas saved the updateable liquidity model and downside working-capital chart.
- Used
- Atlas used the generated Spec_Liquidity_Model.xlsx and Downside_working_capital.png files.
- Did
- Saved both files with the scenario assumptions and decision thresholds intact.
- Supports
- The team can update the model and use the same approval process for the next decision.
Four is the only modeled case that clears the cash floor in the downside, and it clears by just $10,000.
The base case uses your 3.1 monthly spec closings and home-level draw schedule. The downside moves sale proceeds one month and construction draws 20 days. Facility use is the amount drawn up to the current $5.50 million cap. Minimum cash is unrestricted company cash after those capped draws and scheduled uses. Four specs use $5.10 million of the facility in the downside and leave $760,000 of cash, only $10,000 above policy. Five leaves $830,000 in the base case, but the downside reaches the facility cap and drops cash to $460,000, a $290,000 floor shortfall. Eight reaches the facility cap and still needs $1.40 million of additional funding in the base case or $2.10 million in the downside. Approve four only with a warning trigger on Spec 184. Treat the fifth as a new decision after the next two contracts or a lender-approved increase. Spec 184 contributes $612,000 of forecast March proceeds, so its closing status is the input most likely to change the call.
| Strategy | Base facility use | Downside facility use | Downside min cash | Decision |
|---|---|---|---|---|
| 4 standing specs | $4.60M | $5.10M | $760k | CLEARS BY $10K |
| 5 standing specs | $5.05M | $5.50M cap | $460k | $290K BELOW FLOOR |
| 8 standing specs | $5.50M cap | $5.50M cap | below floor | $1.40M / $2.10M GAP |
| Facility / policy | $5.50M | $5.50M | $750k floor | Measured every month |