What Went Wrong with Your Budget and How Can You Improve it?
Your budget year has just begun and already it’s out of whack. Even though occupancy is trending with the national average or better, expenses are unexplainably showing variances that need to be explained. How could this happen?
Examining your Budgeting Process
One way is that your managers were not mentored on how to read and understand financials before they began the budgeting process. Or, even worse, the managers didn’t know what to look for and were seemingly pulling numbers out of thin air. Results from the previous quarter or year, or those anomalies that typically hit the ledgers, weren’t factored.
Christine Bright, Director, OneSite Budgeting and Commercial for RealPage, Inc., has heard the stories during her 21 years in property management.
“Most property management companies say their managers are great at running properties and terrible doing budgets,” said Bright, who has taught CAPS and property management certification. “PMCs invest a lot of time and training into how to run the operational aspect of the property and very little time really teaching managers how to understand the financials, how to forecast and how to tick and tie to key performance indicators to the bottom line.”
Budgeting and forecasting are about property management’s circle of life
Budgeting and forecasting are all about the circle of life of property management. As residents move in and out, there is cause and effect to expense lines and income, Bright says. For someone who is not familiar with a financial sheet, the experience can be a little overwhelming. That’s why helping all budget stakeholders navigate one of the most critical pieces to property management is important.
When Bright headed budgeting as a property manager, she included everyone at the site level, even the maintenance staff. Anybody held accountable for purchases had to understand how their decisions impacted the property’s operating income.
“It’s breaking it into pieces so they can relate how their job impacts each section of the financials,” she said. “If you relate the numbers to what they do every day, then it makes sense. It creates that visual for them to make their purchases and their decisions.
Bright offers four steps to help property management companies get better control of their budgets so they can improve forecasting and arrive at a plan that is more accurate and drives better financial success, right down to the details:
1. Learn to read the financials and understand the numbers
The first step to creating a successful plan starts well before budgeting season. It’s important to spend time with managers and show them how to properly read financial statements, what elements impact the success and even the fatal flaws in generating income. Use that information to predict forward trends for forecasting and re-forecasting.
“My first question when training senior managers is, “How much time do you spend training your first-level managers?” Bright says. “Then I ask them how much time they spend teaching leasing consultants how to lease versus how much time they mentor property managers on reading and understanding financials, then the light bulb always goes on.” Reinforce through financial reviews and documenting anomalies.