I am taking a break from the affordable housing information today. I was out searching for information on converting a sole proprietorship to an S-Corporation, and everything I read was pushing the LLC structure. It turns out that I have things to say about LLC's.
Limited Liability Company's, known as LLC's, are the hottest corporate entity out there. They are easy to set up. They are cheaper than a corporate structure and you can "check the box" for any type of tax treatment that you want. You can be a single member or you can be many members.
LLC's are the most common entity I work with and they have certainly done their part to contribute to the full employment of tax accountants. I have never liked them.
Let me break down some of the problems with LLC's.
LIABILITY
Let's get the issue of liability out of the way up front. The name implies Limited Liability which offers corporate protection that you would not have with a sole proprietorship or even a partnership. But let's get real - if you are just starting a business, no one is going to allow you to borrow funds, use credit or make major commitments with non-existent assets. You will have to provide personal guarantees. You will probably also have to list yourself as the Manager or Managing Member, which has less liability protection. As a practical matter, you will be on the hook no matter what.
In addition to personal guarantees, there is a legal term called "piercing the corporate veil." This is when the courts allow a plaintiff to disregard your company's liability status and come after the owners. This is a hot topic right now, because we are seeing it happen more often in the case of LLC's than anyone ever imagined. I think the reasons for this are partially because of the following discussion.
ORGANIZATION AND LEGAL STRUCTURE
LLC's are ridiculously easy to set up. In many states, you don't even need an Operating Agreement. In the cases where you do need an agreement, I have seen one as short as two pages long. This simplicity may be appealing to you and I get that. But if you plan on doing business in our world, you should be wary of the simple organizational structure. If you have additional Members, a two page or no agreement will not tell you how profits will be shared, what will happen in the case of a Member's demise or unsuitability, and it will leave all things open to interpretation. What if the other Member is your spouse and you get a divorce? Not many people can maintain reasonability when going through a divorce.
I think it is important to be serious about the work that you are doing. One level of that is mapping out the corporate structure and how profits, losses and yes, even cash, will be shared. Laws regarding corporations are complicated, but they exist for a reason. They help provide a framework for the governance of your new organization. Mastering these complexities is one step to committing to your new venture.
Yes, as a CPA, I see the value of jumping through hoops in order to be successful. Go figure.
When you don't have a good foundation for governance and things are handled on a half-baked basis, why would you assume that the courts and any future enemies would take you seriously as a separate corporate structure? You are not taking yourself seriously.
TAXATION
Under current tax law, S-Corporations and LLC's are handled fairly similarly (with notable exceptions). Earnings and losses of the business are passed through to the owners - Shareholders in the S-Corporation or Members in the LLC. If you are a shareholder actively participating in an S-Corporation, the business needs to pay you a reasonable salary and you will need to withhold and pay payroll taxes. If you are a member in an LLC, you will either get distributions or guaranteed payments.
If you have no operating agreement, you will have no idea which until you, or some accountant, checks a box on the tax return.
Your tax information will either be on a Schedule C or a K-1. I like K-1's. They are neat. They tie back to another tax return. They represent real numbers that have also been reported. Schedule C's are messy. Trust me. If you run an actual business and are actively involved, there is a good chance that you may have muddled personal and business funds from time to time. (No judgment.) With a separate tax return, it is actually easier to keep this stuff clean when it comes to reporting. Again, take your business seriously. You don't want trouble with the IRS - they send letters every two weeks. It is annoying. And the envelopes are ominous.
Also, I should note that when you pay yourself a paycheck instead of whatever money is left, you are instilling a cash discipline that can only help when times are hard. You are also continuing to have "earned income". A W-2. For many reasons, these are nice to have. (Have you ever applied for a mortgage?)
I do need to disclose that there has been some discussion about taxing S-Corporations in a manner similar to C-Corporations, and if that happens, I may need to revise my loathing of LLC's, but until then...
EMPLOYEES
If you are planning on hiring employees, it is much easier to be a corporate structure. You already have to pay yourself, so you can just add employees when the time comes. When you interview and have to convince good people that you WILL be in business for a long time, it helps to be a corporation. (People interviewing for jobs don't normally get that stability is a myth. Even in this economy. Especially in this economy. They crave stability.)
I understand that everyone is afraid of doing payroll. I understand that you don't want to deal with taxes and withholdings and how to track the things you need to track. I am here to tell you that you can get help with payroll for a fairly reasonable cost - and if you don't know what you are doing, you should get help. There is nothing that the IRS looks at with less humor than failing to pay payroll taxes properly.
Either way, don't be afraid of payroll. Thousands of small businesses deal with it every year and so can you.
FUTURE PARTNERS
Are you hoping to have future partners? Stock options? Do you want to possibly sell out to a bigger company one day? A corporate structure helps with this because, by law, they track the equity accounts of all the shareholders. You can actually value and sell a part of your business if you wish. You will know the amount of retained earnings if an owner wishes to exit. You will have actual books, because you will be required to keep actual books.
Again, I understand that it is simpler to drop off the shoebox at your CPA, who I am sure is a wonderful person. But, at the risk of sounding like a broken record, take yourself seriously.
INSURANCE
If you have no liability, why do you have to buy business liability insurance to rent office space? To borrow money?
In addition to business liability insurance (and worker's compensation insurance), if you are offering professional services, you must have professional liability insurance. I got mine about five minutes after I picked up the organizational documents from the attorney. I pay that bill first every year. Also, if you are offering professional services, there is a good chance that you have to register as either a Personal Services Corporation or a Professional Corporation - certain professionals can not opt out of liability.
In closing, let me say that I have seen Operating Agreements for LLC's that are in excess of 200 pages long. These organizations are created for a specific purpose, such as holding one piece of real estate. Many attorneys are involved and many precautions are taken. These entities are not going to hire employees and they will cease on a certain date. These types of entities are not the ones I am talking about. I am talking about people owning a business and growing it with no foundation. For those people, I say please, please, please reconsider your decision to be an LLC - or at least take a minute to think through the possible consequences of this decision. Even the uncomfortable ones - divorce, death, the ending of a friendship - and put those items in your operating agreement.
Okay, there was some tax stuff in here, so I have to say:
Please be advised that, to the extent this communication contains any advice or opinions concerning federal tax matters, it is not intended to be, and may not be, used or relied upon by any taxpayer for the purpose of avoiding penalties under federal tax law.
Monday, April 19, 2010
Thursday, April 15, 2010
Managing the Management Company: Cash
When you own a real estate project, affordable or not, you will have to determine how you are going to manage it. The majority of owners look to third party management companies to assist in the collecting of rents, paying of expenses and dealing with tenant issues. In addition, for affordable housing units, a third party management company can assist in meeting compliance requirements around income and rent limits and other items.
Selecting a management company is always a challenge. An investor I work with has commented that every time there is a hot, new, really good management company, everyone will switch their projects, they will get too busy, and then they won't be as good anymore. I always thought that observation could apply to a lot of small businesses.
Assuming that you are going to use a management company, there are a few things that you should know.
The management company is going to report to the budget. In the management world, asset managers are held acountable to an operating budget. In fact, they are often paid bonuses based on their portfolio's performance to budget. And they are trained to move around expenses until they meet that budget. I urge you to look closely at the budgets you approve, because that is a map of the results (assuming no unusual events).
I worked with one management company that put any items not on the budget in capital expenditures (balance sheet). I once found a billing for marketing brochures in the fixed asset account. Obviously, this is to meet their bonus guidelines, and is not really useful for your internal reporting and analyzation of financial benchmarks.
The management company can not be trusted with cash. I am not saying that they will steal the cash (although fraud is always something that you should be on the look-out for); rather, I am saying that if a property is performing and there is a lot of cash sitting around, well, operations will eventually decline.
It's human nature to pay closer attention to expenses and make decisions based on cost/benefit when the cash situation is tighter. If a project has a lot of cash in it, then the asset manager is saved from having to worry about it too much and may not watch expenses as closely. This same attitude may affect the owner's side as well.
I generally recommend that owners sweep cash above a certain amount out of the management company trust account. This ensures that current expenses are being paid from current operations. If, for some reason, there is not enough cash to pay one month's expenses, you will know it immediately. If you have a pile of cash, you may not realize there has been a change in operations for quite some time.
I work with one company that had a lot of developmental money locked into a project. By locked, I mean, they forgot to take it. One of the first things we showed them was the project's negative operating cash flow. In fact, this project had been operating at a deficit for a few years. This had not been closely monitored before, because the project had a $100,000 in the bank, so no one worried about it.
Had this owner swept the cash, they would have been able to implement some changes to the budget in a much more timely manner and been able to recover all of the development money that they forgot to take. As it was, they left money on the table.
SWEEP THE CASH
In affordable housing, sweeping the cash does not mean that you have come into a windfall. There are generally provisions in your Operating or Partnership agreement with the investor that stop you from taking cash until the annual audit is complete. So, in this case, the owner should have a bank account in the entity's name where they keep the sweep of money from the management company. That bank account would show on the project's books at the owner level (after recording activity from the management company).
The management company will reflect this sweep as one of two things: an owner distribution (most common) or an other expense (I've seen this too). In fact, it is merely a cash transfer, so you would record the cash received and credit whichever account the management company used to ensure that this sweep does not erroneously show up as revenue, expense, or a change in equity.
Selecting a management company is always a challenge. An investor I work with has commented that every time there is a hot, new, really good management company, everyone will switch their projects, they will get too busy, and then they won't be as good anymore. I always thought that observation could apply to a lot of small businesses.
Assuming that you are going to use a management company, there are a few things that you should know.
The management company is going to report to the budget. In the management world, asset managers are held acountable to an operating budget. In fact, they are often paid bonuses based on their portfolio's performance to budget. And they are trained to move around expenses until they meet that budget. I urge you to look closely at the budgets you approve, because that is a map of the results (assuming no unusual events).
I worked with one management company that put any items not on the budget in capital expenditures (balance sheet). I once found a billing for marketing brochures in the fixed asset account. Obviously, this is to meet their bonus guidelines, and is not really useful for your internal reporting and analyzation of financial benchmarks.
The management company can not be trusted with cash. I am not saying that they will steal the cash (although fraud is always something that you should be on the look-out for); rather, I am saying that if a property is performing and there is a lot of cash sitting around, well, operations will eventually decline.
It's human nature to pay closer attention to expenses and make decisions based on cost/benefit when the cash situation is tighter. If a project has a lot of cash in it, then the asset manager is saved from having to worry about it too much and may not watch expenses as closely. This same attitude may affect the owner's side as well.
I generally recommend that owners sweep cash above a certain amount out of the management company trust account. This ensures that current expenses are being paid from current operations. If, for some reason, there is not enough cash to pay one month's expenses, you will know it immediately. If you have a pile of cash, you may not realize there has been a change in operations for quite some time.
I work with one company that had a lot of developmental money locked into a project. By locked, I mean, they forgot to take it. One of the first things we showed them was the project's negative operating cash flow. In fact, this project had been operating at a deficit for a few years. This had not been closely monitored before, because the project had a $100,000 in the bank, so no one worried about it.
Had this owner swept the cash, they would have been able to implement some changes to the budget in a much more timely manner and been able to recover all of the development money that they forgot to take. As it was, they left money on the table.
SWEEP THE CASH
In affordable housing, sweeping the cash does not mean that you have come into a windfall. There are generally provisions in your Operating or Partnership agreement with the investor that stop you from taking cash until the annual audit is complete. So, in this case, the owner should have a bank account in the entity's name where they keep the sweep of money from the management company. That bank account would show on the project's books at the owner level (after recording activity from the management company).
The management company will reflect this sweep as one of two things: an owner distribution (most common) or an other expense (I've seen this too). In fact, it is merely a cash transfer, so you would record the cash received and credit whichever account the management company used to ensure that this sweep does not erroneously show up as revenue, expense, or a change in equity.
Tuesday, March 30, 2010
Tax Exempt Bond Financing and Mortgages
Note: This post is technical in nature and not necessarily intended for the accounting faint of heart.
In today's finance world, developers of affordable housing often leverage LIHTC projects with other forms of public financing. (For more information on LIHTC's see previous posting "What the Heck is LIHTC? (Lie-Tech)".)
One form of financing that is commonly used it the tax exempt bond. Tax exempt bonds are issued by government agencies as a means of underwriting affordable housing. There is normally a series of bonds issued to cover both the construction and permanent loan phases of a project (approximately 30 years on average). The construction loan phase is paid at or near "conversion" to permanent financing with equity contributions from the LIHTC investor and the permanent bonds are paid off in phases over the life of the debt service. Interest rates will vary for each of the bonds depending on the length of the bond terms.
Being involved in a bond financed project comes with additional costs, including but not limited to annual Trustee fees, regular arbitrage calculations, state agency monitoring fees and remarketing fees. Not all issues have the same fees, but it is important to understand that interest and principal are not the only period costs incurred in the case of bond financing.
Despite the underlying debt being composed of bond financing, it is becoming more typical to structure the debt service on the Project in the same manner as an amortizable mortgage to cover all of the interest, principal and related fees. It is at this point that the accounting can get tricky.
When a servicer is used for the purposes of collecting the "mortgage payment", the Project will often get a monthly mortgage statement which covers debt service and monthly additions to the required reserves. Sometimes this statement will break out all the fees and reserve payments in addition to the interest and principal and sometimes it won't (believe me, I have seen everything!); but either way, that mortgage payment is not recorded in the same manner as other mortgages.
For a very basic example, here is what’s happening:
1. The Project pays the mortgage and escrow payments to the Servicer.
2. The Servicer transmits payments to the Trustee under some schedule they have and you don’t. Sometimes they keep a portion for their fee (called “interest”) and sometimes they don’t.
3. The Trustee puts the payments in reserve accounts typically labeled as follows: Replacement Reserve, Debt Service Reserve, and Operating Reserve.
4. The Trustee pays interest earnings on the Reserve accounts and sends statements to the Project.
5. On January July 1st, the Trustee makes interest and bond pay downs as required on the face of the bond coupon.
6. Throughout the year, the Trustee either makes payments or sends invoices to the Projects for payments on fees.
If you were following this narrative above, you might consider the fact that the Project has paid its mortgage, but it has ended up in bank accounts on the Project’s books (the Trustee accounts). And because bond pay downs are typically made around January 1; at a December year-end, a number of accountants would show large cash balances held by the Trustee (confirmed) and a large accrued interest and bond payable (due to the bondholders the next day).
If you are already lost on the accounting technology, turn back now!
Now consider this: the Project has paid its mortgage payments on time. There should be at most one month of accrued interest for January's payment in accordance with the mortgage agreement (if the servicer keeps a portion of the interest, none if they don’t). However, the bondholders are still owed their interest, so there would be up to 6 months of accrued interest according to the bond documents.
Both these statements are true, but you have a conflict if you try to account for both since you can’t have both one month and six month’s of accrued interest. That would be weird. So, here is how I have handled this situation in the past (with auditor blessing):
Assuming the servicer is not being paid out of the mortgage payment, the accrued interest is zero. The bond principal (debt) should be reduced to reflect the payment that the Trustee will make the next day. Interest expense should equal the amount paid to the bondholders on July 1st and January 1st (of the next year). The offset for this entry would be a contra-account to the Trustee balances for the amounts due to bondholders. The entries would look like this:
Monthly Mortgage payments:
Debit Trustee Accounts
Credit Cash
Debit Interest Expense
Debit Bond Payable
Credit "Due to Bondholders" (Contra to Trustee Accounts) in accordance with the bond pay down schedule (yes, you need this schedule)
January 1 and July 1 Bond Payments:
Debit "Due to Bondholders"
Credit Trustee Accounts
Monthly Trustee Statement:
Debit Trustee Accounts
Credit Interest income
Debit Any fees (Note: Fees should be analyzed for prepaid accruals as needed)
Credit Trustee Accounts
At year-end, there should be no accrued interest, the balance on the bonds payable should be reduced by the next day's payment, and the Trustee accounts should be shown net of the payment of principal and interest due January 1. This reflects that the required payments have been made by the Project, and there is no other period expense to the project requiring operating cash. This also reflects that the money paid, while still in the Project's name at the Trustee, is not under the Project’s control and is therefore reduced by the TRUSTEE'S obligation to the Bondholders.
I would like to say that the preceding example covers all situations, but alas, each one is slightly different, so you will need to use your noggin. My general advice would be – make sure you get activity statements regularly from both the Servicer and the Trustee. Once you have those, you should FOLLOW THE CASH.
Before submitting financial statements for audit, step back and do a reasonableness test – does interest expense make sense based on the underlying debt obligation and the mortgage payment? If no, go back to the statements and trace it through again until it does make sense.
Next time: Why you should sweep cash from the management company and how you should record it.
In today's finance world, developers of affordable housing often leverage LIHTC projects with other forms of public financing. (For more information on LIHTC's see previous posting "What the Heck is LIHTC? (Lie-Tech)".)
One form of financing that is commonly used it the tax exempt bond. Tax exempt bonds are issued by government agencies as a means of underwriting affordable housing. There is normally a series of bonds issued to cover both the construction and permanent loan phases of a project (approximately 30 years on average). The construction loan phase is paid at or near "conversion" to permanent financing with equity contributions from the LIHTC investor and the permanent bonds are paid off in phases over the life of the debt service. Interest rates will vary for each of the bonds depending on the length of the bond terms.
Being involved in a bond financed project comes with additional costs, including but not limited to annual Trustee fees, regular arbitrage calculations, state agency monitoring fees and remarketing fees. Not all issues have the same fees, but it is important to understand that interest and principal are not the only period costs incurred in the case of bond financing.
Despite the underlying debt being composed of bond financing, it is becoming more typical to structure the debt service on the Project in the same manner as an amortizable mortgage to cover all of the interest, principal and related fees. It is at this point that the accounting can get tricky.
When a servicer is used for the purposes of collecting the "mortgage payment", the Project will often get a monthly mortgage statement which covers debt service and monthly additions to the required reserves. Sometimes this statement will break out all the fees and reserve payments in addition to the interest and principal and sometimes it won't (believe me, I have seen everything!); but either way, that mortgage payment is not recorded in the same manner as other mortgages.
For a very basic example, here is what’s happening:
1. The Project pays the mortgage and escrow payments to the Servicer.
2. The Servicer transmits payments to the Trustee under some schedule they have and you don’t. Sometimes they keep a portion for their fee (called “interest”) and sometimes they don’t.
3. The Trustee puts the payments in reserve accounts typically labeled as follows: Replacement Reserve, Debt Service Reserve, and Operating Reserve.
4. The Trustee pays interest earnings on the Reserve accounts and sends statements to the Project.
5. On January July 1st, the Trustee makes interest and bond pay downs as required on the face of the bond coupon.
6. Throughout the year, the Trustee either makes payments or sends invoices to the Projects for payments on fees.
If you were following this narrative above, you might consider the fact that the Project has paid its mortgage, but it has ended up in bank accounts on the Project’s books (the Trustee accounts). And because bond pay downs are typically made around January 1; at a December year-end, a number of accountants would show large cash balances held by the Trustee (confirmed) and a large accrued interest and bond payable (due to the bondholders the next day).
If you are already lost on the accounting technology, turn back now!
Now consider this: the Project has paid its mortgage payments on time. There should be at most one month of accrued interest for January's payment in accordance with the mortgage agreement (if the servicer keeps a portion of the interest, none if they don’t). However, the bondholders are still owed their interest, so there would be up to 6 months of accrued interest according to the bond documents.
Both these statements are true, but you have a conflict if you try to account for both since you can’t have both one month and six month’s of accrued interest. That would be weird. So, here is how I have handled this situation in the past (with auditor blessing):
Assuming the servicer is not being paid out of the mortgage payment, the accrued interest is zero. The bond principal (debt) should be reduced to reflect the payment that the Trustee will make the next day. Interest expense should equal the amount paid to the bondholders on July 1st and January 1st (of the next year). The offset for this entry would be a contra-account to the Trustee balances for the amounts due to bondholders. The entries would look like this:
Monthly Mortgage payments:
Debit Trustee Accounts
Credit Cash
Debit Interest Expense
Debit Bond Payable
Credit "Due to Bondholders" (Contra to Trustee Accounts) in accordance with the bond pay down schedule (yes, you need this schedule)
January 1 and July 1 Bond Payments:
Debit "Due to Bondholders"
Credit Trustee Accounts
Monthly Trustee Statement:
Debit Trustee Accounts
Credit Interest income
Debit Any fees (Note: Fees should be analyzed for prepaid accruals as needed)
Credit Trustee Accounts
At year-end, there should be no accrued interest, the balance on the bonds payable should be reduced by the next day's payment, and the Trustee accounts should be shown net of the payment of principal and interest due January 1. This reflects that the required payments have been made by the Project, and there is no other period expense to the project requiring operating cash. This also reflects that the money paid, while still in the Project's name at the Trustee, is not under the Project’s control and is therefore reduced by the TRUSTEE'S obligation to the Bondholders.
I would like to say that the preceding example covers all situations, but alas, each one is slightly different, so you will need to use your noggin. My general advice would be – make sure you get activity statements regularly from both the Servicer and the Trustee. Once you have those, you should FOLLOW THE CASH.
Before submitting financial statements for audit, step back and do a reasonableness test – does interest expense make sense based on the underlying debt obligation and the mortgage payment? If no, go back to the statements and trace it through again until it does make sense.
Next time: Why you should sweep cash from the management company and how you should record it.
Friday, March 26, 2010
What the Heck is LIHTC? (Lie-Tech)
Low Income Housing Tax Credits (LIHTC's) are a tax program used commonly over the past 15 years for affordable housing developments. Pronounced most recently Lie-tech, these so-called tax credit deals are responsible for pushing affordable housing out of the old Section 8 stigma and into a world where you don't always know that you are walking into affordable housing. With notable exceptions, the construction is generally better, the management is more high-class, and the apartments are nicer than what we had previously seen in affordable housing.
Tax credits are generally allocated by various State agencies on behalf of the federal government and can be obtained through a rigorous application process. While there are several very good developers involved in LIHTC housing, the trend has been for not-for-profit corporations to act as developer and owner of these projects. A benefit of having a not-for-profit involved (typically called a CDC or Community Development Corporation) is that they often provide some type of resident services programs that contribute to the stability of the rental population, which in turn keeps these properties more pleasant, livable and healthy. When you are involved with your residents, you can identify and respond more quickly to problems as they arise, before the whole community is affected. Problems can be of both a social and/or livability nature.
The LIHTC is a tax credit that never shows up in GAAP financial data. Rather, it is taken as a dollar for dollar reduction in tax on tax returns. The credit is issued for 15 years with related compliance requirements, but generally received on the return for 10 years.
As a tax exempt entity, CDC's have no use for a tax credit and so they sell their allocation to banks and other consortiums to raise additional financing to complete development of affordable housing projects. In exchange for purchasing the credit, the investors typically retain 99% ownership in the project on a limited basis during the compliance period. Because of the government's involvement and the now typical leveraging of the credit with other types of tax-exempt and federal financing, LIHTC projects should never be undertaken without the assistance of competent professionals versed in these matters.
Tax credits are generally allocated by various State agencies on behalf of the federal government and can be obtained through a rigorous application process. While there are several very good developers involved in LIHTC housing, the trend has been for not-for-profit corporations to act as developer and owner of these projects. A benefit of having a not-for-profit involved (typically called a CDC or Community Development Corporation) is that they often provide some type of resident services programs that contribute to the stability of the rental population, which in turn keeps these properties more pleasant, livable and healthy. When you are involved with your residents, you can identify and respond more quickly to problems as they arise, before the whole community is affected. Problems can be of both a social and/or livability nature.
The LIHTC is a tax credit that never shows up in GAAP financial data. Rather, it is taken as a dollar for dollar reduction in tax on tax returns. The credit is issued for 15 years with related compliance requirements, but generally received on the return for 10 years.
As a tax exempt entity, CDC's have no use for a tax credit and so they sell their allocation to banks and other consortiums to raise additional financing to complete development of affordable housing projects. In exchange for purchasing the credit, the investors typically retain 99% ownership in the project on a limited basis during the compliance period. Because of the government's involvement and the now typical leveraging of the credit with other types of tax-exempt and federal financing, LIHTC projects should never be undertaken without the assistance of competent professionals versed in these matters.
Wednesday, March 24, 2010
My Dream Job is a Nightmare
NOTE: Every so often, I write about a different topic than accounting/affordable housing. This is one of those times. I personally believe thinking about other things is relevant to a well rounded business approach and I hope you enjoy my thoughts. However, I feel compelled to disclaim that most of my blogs are of a more business oriented nature. For whatever that is worth.
On my personal page, I follow http://www.dumbemployed.com/, a sometimes funny site that allows people to post snapshots of their day in the format, "At work today, I... (insert funny story) ...I'm dumbemployed."
On March 22, 2010, someone posted the following, "At work today, I did beta testing for a video game. Sounds fun, right? Well, why don't you try running into a wall 50 times in a row? My dream job is a nightmare. I'm dumbemployed." This made me smile and I started thinking of all the times I have heard from the kids that their dream job is to test video games.
I have the same problem in my office all the time. I hear employees expound on what they want to do, and I look at them and think, no you don't. You really don't. The same thing happens with clients.
When faced with this situation, I try to listen to the desire and work with that desire in any way I can, but the reality sometimes crushes the person when it happens. Dreams can cost money and dream jobs can still be, well, work.
The old saying "be careful what you wish for, as you will surely get it" comes to mind. I remember the day I took the words "seeks challenging position" off my resume. I didn't need to seek any challenge, it always seems to land right in my lap. But I do embrace the challenges now, and when I start to imagine that my current dream job (owner of a CPA firm) is a nightmare, I remember the lessons I have learned:
On my personal page, I follow http://www.dumbemployed.com/, a sometimes funny site that allows people to post snapshots of their day in the format, "At work today, I... (insert funny story) ...I'm dumbemployed."
On March 22, 2010, someone posted the following, "At work today, I did beta testing for a video game. Sounds fun, right? Well, why don't you try running into a wall 50 times in a row? My dream job is a nightmare. I'm dumbemployed." This made me smile and I started thinking of all the times I have heard from the kids that their dream job is to test video games.
I have the same problem in my office all the time. I hear employees expound on what they want to do, and I look at them and think, no you don't. You really don't. The same thing happens with clients.
When faced with this situation, I try to listen to the desire and work with that desire in any way I can, but the reality sometimes crushes the person when it happens. Dreams can cost money and dream jobs can still be, well, work.
The old saying "be careful what you wish for, as you will surely get it" comes to mind. I remember the day I took the words "seeks challenging position" off my resume. I didn't need to seek any challenge, it always seems to land right in my lap. But I do embrace the challenges now, and when I start to imagine that my current dream job (owner of a CPA firm) is a nightmare, I remember the lessons I have learned:
- Identify the problem and then either finish it first, pay someone else to do it, or get rid of the job. That's it. 3 choices.
- You chose to be where you're sitting. I know that sometimes it feels like you are wandering down some pre-ordained path; but in reality, you make choices every day to be right where you are. You could change.
- Living really is about the path. If you have "arrived", start looking for the new path (the next dream) or you will stagnate.
Okay, you have the three lessons I apply when faced with the prospect that My Dream Job is a Nightmare. To continue in the cheesy quote tradition - I never said it would be easy, just that it would be worth it.
Sunday, March 14, 2010
Managing Your Affordable Housing Portfolio (A Brief Introduction)
Real estate development has slowed over the past years and the focus for developers and owners of Affordable Housing has turned to managing the assets that they do have. Frankly, the cost of managing projects was never contemplated as a Company cost and was never underwritten when the deal was put together. In the past, the Managing Member or General Partner just provided administrative support and the Company paid for its audit.
In the current environment of accounting regulation, it is clear that the management company financial information, while useful for determining cash flow, is not sufficient for producing GAAP financial information on a quarterly/annual basis. Additionally, there are important development milestones that are met during the course of the compliance periods which need to be monitored for both the Investor and the Manager and the Manager is charged with monitoring the management company and on-going operations.
When these duties are performed by qualified individuals, an additional cost to the Company is incurred, and then the negotiating begins. Who pays the costs to manage these properties? Is it really the Manager's job to fund this from their "Partnership Administration Fees", a cash-flow fee that they may never actually generate? Or do we need to budget in these costs the same as we budget in the organization's audit?
In light of the fact that many non-profit Community Development Corporations are scrambling to fund operations with no development fees, and many Investors are reluctant to take back the management and ownership of the Projects, it is becoming more commonplace to bill this work directly to the project. Fortunately, occupancy for most projects has been stable in the down economy and cash flow can cover these expenses. However, as mentioned above, these were not underwritten costs and cash flow for these costs may not be sustainable.
Further education, discussion and decisions are going to have to be made on how a Project is expected to pay for the costs of Asset Management by the Company during the compliance period and going forward.
In the current environment of accounting regulation, it is clear that the management company financial information, while useful for determining cash flow, is not sufficient for producing GAAP financial information on a quarterly/annual basis. Additionally, there are important development milestones that are met during the course of the compliance periods which need to be monitored for both the Investor and the Manager and the Manager is charged with monitoring the management company and on-going operations.
When these duties are performed by qualified individuals, an additional cost to the Company is incurred, and then the negotiating begins. Who pays the costs to manage these properties? Is it really the Manager's job to fund this from their "Partnership Administration Fees", a cash-flow fee that they may never actually generate? Or do we need to budget in these costs the same as we budget in the organization's audit?
In light of the fact that many non-profit Community Development Corporations are scrambling to fund operations with no development fees, and many Investors are reluctant to take back the management and ownership of the Projects, it is becoming more commonplace to bill this work directly to the project. Fortunately, occupancy for most projects has been stable in the down economy and cash flow can cover these expenses. However, as mentioned above, these were not underwritten costs and cash flow for these costs may not be sustainable.
Further education, discussion and decisions are going to have to be made on how a Project is expected to pay for the costs of Asset Management by the Company during the compliance period and going forward.
Friday, February 26, 2010
Strategic Planning - Not Just for the Shower!
How often does your organization perform strategic planning? How much of it happens in the shower in the morning? If you run a small or even medium sized business, you are probably in a constant state of strategic planning, at least in your head. I am here to plug making time to formalize this process.
At least annually, I have connected with a marketing professional that has helped me think through several areas of running a business. He assists me in writing a plan and a calendar for the next period for the growth and expansion of my business and my thought leadership aspirations. In addition to the written plan, I also take time to budget my projected revenues and expenses and to put my dreams into numbers. I am pretty good with the numbers part and my consultant is pretty good at framing my numbers into words.
I usually start by telling him where I think things are going. I tell him about the previous year's successes and failures and what my thoughts are on how to either repeat or avoid them going forward. Then we separate as he starts writing his piece and interestingly enough, that is when my real thinking begins. And before you know it, I am calling him back and saying, "Well, I thought about it and what I REALLY want to do is this." It is that second call that sets me off in the next/right direction. But I never would have crystallized my thought process if I hadn't talked to him in the first place.
Now for the follow-up: much like my original business plan, my annual marketing plan gathers dust on the server; but I truly believe that the value of writing things down absolutely translates into action. Each year when I come back to last year's plan, I find that I accomplished 80-90% of it. In fact, this process happens annually because each year around November or so, I find myself feeling restless, disjointed in my efforts in the community and downright hectic. Then I make a new plan and I am off and running again.
My advice for what it's worth: Figure out what you are good at, find someone who is good at another piece and who can talk you through the crazy jumble in your head and invest the time and money to formalize your strategic plan... It doesn't have to be a lot of either, but without it, what are you doing? Trying to run a business? Or just trying to avoid working for someone else?
At least annually, I have connected with a marketing professional that has helped me think through several areas of running a business. He assists me in writing a plan and a calendar for the next period for the growth and expansion of my business and my thought leadership aspirations. In addition to the written plan, I also take time to budget my projected revenues and expenses and to put my dreams into numbers. I am pretty good with the numbers part and my consultant is pretty good at framing my numbers into words.
I usually start by telling him where I think things are going. I tell him about the previous year's successes and failures and what my thoughts are on how to either repeat or avoid them going forward. Then we separate as he starts writing his piece and interestingly enough, that is when my real thinking begins. And before you know it, I am calling him back and saying, "Well, I thought about it and what I REALLY want to do is this." It is that second call that sets me off in the next/right direction. But I never would have crystallized my thought process if I hadn't talked to him in the first place.
Now for the follow-up: much like my original business plan, my annual marketing plan gathers dust on the server; but I truly believe that the value of writing things down absolutely translates into action. Each year when I come back to last year's plan, I find that I accomplished 80-90% of it. In fact, this process happens annually because each year around November or so, I find myself feeling restless, disjointed in my efforts in the community and downright hectic. Then I make a new plan and I am off and running again.
My advice for what it's worth: Figure out what you are good at, find someone who is good at another piece and who can talk you through the crazy jumble in your head and invest the time and money to formalize your strategic plan... It doesn't have to be a lot of either, but without it, what are you doing? Trying to run a business? Or just trying to avoid working for someone else?
Subscribe to:
Posts (Atom)