Cash Flow Distribution to Partners

[Alan Bussey]

Hello, everyone -

This forum has always been a valuable resource. Thank You, Bill, for this site.

I want to be able to suggest a reasonably simple, easy-to-determine method for distributing the cash flow after paying all of the expenses and the debt service.

My thought is that the business needs a minimum amount of cash readily available at all times. So I thought that maybe a minimum amount of cash or 'working capital' should be set before distributing cash to the partners.

What are some practical and objective ways to determine how discretionary cash flow is distributed? How often is this amount determined? What information is used? How often is cash distributed?

I would like to put a formula into the cash flow projections to do some cash flow and cash balance forecasting. My experience with forecasting future cash flow has been good. I need to know how determining the cash distribution is done in the real world.

Thank you.

Alan Bussey

 

[lighthousecarwash]

I was told one time that a good way to do it was if you have 2 partners, then you pay each an equal share after expenses, but include the business as one of the partners. So 4 equal shares...25% to you and 25% to each of your 2 partners and 25% to the business.

 

[Earl Weiss]

Great question. Like many things in this industry ask 5 people a question and you'll get 10 opinions. Since every location is different I think you need to consider factors and come up with a number.

For instance, a facility with older equipment should have a larger reserve for repairs and replacement than one in which everything is brand new. Fixed expenses (Rent, Debt service, Taxes, Insurance, etc. ) can vary widely.

Some planners suggest 6 months of fixed expenses should be a reserve. Depending on age of faciliy X$ for capital repairs and replacement. The partnership / shareholder / operating agt should specify the amounts with a cap, and once the cap is reached, only then are distributions made.

Have done this with real estate, and the amounts vary greatly with the size of the buildiing due to the variation for major repairs such as roof, boilers, and tuckpointing. The important thing is for "Investors" to know going in they won't get an ROI for some time until the reserve is built up.

 

[Alan Bussey]

Earl -

Thank you. For a well-performing full-service conveyor wash with a larger decades-old building and older well-maintained equipment, what amount of money each month or quarter would be a sensible amount as a replacement reserve to be set aside? This would be a separate number from the ongoing repairs and maintenance expense, with the replacement reserve deposited into a 'savings' account. Ongoing repairs and maintenance expenses would be paid from the day-to-day operating account.

What amount of money each month or quarter would be a sensible amount as a replacement reserve to be set aside?

Thanks.

Alan Bussey

 

[Earl Weiss]

Earl -

Thank you. For a well-performing full-service conveyor wash with a larger decades-old building and older well-maintained equipment, what amount of money each month or quarter would be a sensible amount as a replacement reserve to be set aside? This would be a separate number from the ongoing repairs and maintenance expense, with the replacement reserve deposited into a 'savings' account. Ongoing repairs and maintenance expenses would be paid from the day-to-day operating account.

What amount of money each month or quarter would be a sensible amount as a replacement reserve to be set aside?

Thanks.

Alan Bussey

I cannot answer that question . too many unknowns. One would have to review the condition and age of many major components that eventualy wear out or die and need replacement and see what major expenses are looming on the Horizon and need to be planned for. These would include Things like Roof, Pavement, tuckpointing, conveyor, and anything else that has a life expectancy or looks like wear and tear or corrosion has made repairs no longer possible.

Had some clients who owned numerous post offices and sold them to a group that owned 80 post offices. I asked them what they did about long term maintenance and they said they put in a reserve of 15 cents per square foot per month from the rent into a fund. But, that was only for structural elements so a conveyor car wash would need to factor that in plus more.

Sorry I could not be of more help.

 

[Alan Bussey]

Earl -

You did answer the question about the reserve amount. We will make a list of the things that will need replacement or significant rebuild, set a likely date that those will need to be done, estimate the cost and then calculate a monthly deposit amount to get all of things paid for as needed. Does this sound reasonable? Any ideas on a different way to calculate and set aside the replacement money?

It seems that the method needs to be fairly simple to calculate, but mainly that regular replacement set-asides are actually deposited.

Thank you, again.

Alan.

 

[Earl Weiss]

The more people involved, the better it is to have standards. The most cnservative way is to put away too much initialy until a certain lvel is met and then suspend any further contributions until the level falls below the ceiling.