Positive Cash Flow - The Lifeblood of Retirement Village Businesses

Over the past year or so, there has been increased scrutiny of cash flow in the retirement village sector.  There have been some well-publicised reports from analysts and the media on the impact of running a retirement village without sufficient focus on cash. This business isn’t just about delivering an excellent lifestyle for residents — it’s a sophisticated business with unique financial dynamics.

In New Zealand’s retirement sector, strong, net positive cash flow is crucial. It underpins everything from developing new villages and extending facilities to delivering ongoing care services and meeting financial obligations, including returns to the shareholders.

Some key points to consider:
Development and expansion: The industry relies on selling occupation rights to fund future growth. Positive cash flow from these transactions directly supports ongoing expansion and renewal.

Resident care and operations: Daily operations — from maintenance to staffing — need reliable cash flow to maintain service quality and meet promises made to residents.

Strong cash flows from resales and DMF: A significant contributor to strong cash flow is income from resales of occupation rights and the associated deferred management fees (DMF). Managing these efficiently — and maximising margins from resales — can profoundly affect financial health and future investment decisions.

Cash flow over profits: Importantly, positive cash flow matters more than accounting profits. A business can show a healthy paper profit while having weak cash flow, putting its ability to pay its bills and fund future growth at risk. Focusing on actual cash in and out enables boards and management to respond to market changes more effectively.

Effective cash flow management isn’t just about staying solvent — it’s a powerful tool for delivering a better future for all stakeholders. It lets retirement villages innovate, grow, and respond to their communities’ needs with confidence.

I've led businesses through significant change and growth, and I understand the delicate balance required to align financial discipline with delivering a first-rate lifestyle for our seniors.  Call me if you are not experiencing strong, net positive cash flow from resales, DMF, and daily operations.