Magazine article Journal of Property Management

Budgeting '90S Style

Magazine article Journal of Property Management

Budgeting '90S Style

Article excerpt

For many managers, ownership and operations in the 1980s were characterized by overleveraged real estate deals, abrupt and significant changes in the tax code, a parade of existing and newly created government agencies that took the place of investor clients, and corporate downsizing.

Not all of the reshaping of procedures and management styles tha tresulted from these forces were ne gative. Many positive changes were born from this uncertain and ever-changing operating environment.

Of all the metamorphoses, changes in the process of budgeting may hold the most direct benefit to managers of the '90s. Regardless of your client entity--corporation, individual, institution, government, or self--a manager's ability to positively affect NOI, with its direct relation to value, can serve to separate him or her from the masses. Here are a few "battle-tested" tips for turning the oft dreaded annual budget process into a prosperous and dynamic experience.

Budgeting as Process

Keep an open budget file on your desk, and make notes of ideas on a daily basis that could positively or negatively affect operations. Just as importantly, take the time to work those ideas into the property budget no less frequently than once a month.

Keep current on local political and economic events, and anticipate their potential impact on the property's operations and fiscal management. Are the local utilities about to be granted a rate hike? Is your municipal trash facility under scrutiny from a regulatory agency] Would regulatory compliance result in an increased expense passed through to the property?

Dig, dig, dig. Use the best and most current information available. Sometimes that means getting past the public relations veil thrown over supplier prices. For example, after some research, you might find that a reported utility-rate "decrease" was in actuality a reduction of the percentage of increase allowed by a corporation commission.

Tools for the '90s

Your maintenance personnel might be happy to tell you how to save thousands of dollars on operations. Ask them] Also make certain to reward your office and administrative staff for their time- and money-saving ideas.

Use '90s budgeting tools. If you have a computer and a spreadsheet program, and someone in your office who can write a few simple formulas, you can develop a sophisticated, sensitized budget program in a few hours. (If you are still resisting the computer age, a four-function calculator and a pad and pencil will work fine. It just takes a little longer.)

If you have a high-end accounting software package, make sure you take advantage of the custom reporting features to accumulate and summarize crucial budget variance and operational information for your or your staff's review on at least a monthly basis.

Be sure to load projected income and expense by the month of expected receipt/payment. If your software only allows for one-twelfth budgeting, take the time to prepare a separate spreadsheet or columnar report for analysis of monthly cash flows. Refine your projections as new information becomes available.

Find out what items are important to your property's tenants. Then find a way to work those items into the budget with the highest priority possible. Tenant retention may have more influence on the "bottom line" than any single line item in the budget.

Becoming Interactive

Make sure your clients understand that you intend to use the budget as an interactive management tool. Create a column in your reports for approved budget variances, if necessary. Most budgets will allow for some mid-budget-year adjustments as critical budget information changes or new information becomes relevant or available. Your prognosticating skills have little value unless they hit the bottom line.

Separate budget line items into controllable and non-controllable expenses. Even the most thoughtfully prepared budget is not immune to mid-budget-year "surprises" in either category. …

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