Budget season is one of the most important planning periods for any company. Unfortunately, it's also one that many businesses despise. It involves countless calculations, forecasts, and the need for agreements.
Naturally, budgeting is vital for property management. Structuring your resource allocation lets you carry out your objectives appropriately. When done improperly, discrepancies can result in significant financial losses.
Controlling your expenses and allocating resources should be your first goal during this season. Luckily, we've helped plenty of businesses plan and execute their budgets to the letter. Today, you'll learn how to do the same.
What are the Most Common Challenges?
The London School of Business & Finance has an excellent summary of the most common budgeting challenges for companies. As the article explains, structuring your expenditure strategy is crucial for your company's growth.
When working with limited resources, a proper budget structure should be a priority. Small and medium-sized businesses depend a lot more heavily on budgeting strategies. However, efficient management is still a primary advantage for any company.
Furthermore, company budgets are more delicate than personal ones. It's more difficult, but it doesn't have to be impossible. Your company's budget should be an advantage, not a problem. Identifying the most common problems is the first step to overcome them.
Data Accuracy
Most businesses rely on several departments. For real estate, that's even more important. Accounting, sales, marketing, property management, leasing, specific projects, and other departments generate data separately.
Assessing their expenses is a huge challenge. Inaccuracies and mistakes result in under- or over-budgeting. Both scenarios are equally detrimental to the company's goals and finances.
Integrating Data Together
Whether you're using Yardi, MRI, or another real estate software, you'll probably have team members working on different things simultaneously. How do you combine the different excel sheets? How do you ensure team members are kept in the loop with changes? Having everything over the cloud can help every department in the organization synchronize their workflow. It will be easy to pull information and update data fields as needed.
No Adaptation
Ideally, your budget should remain relevant during the entire fiscal year. However, that's far from meaning that you should stick to the original version eternally. As mentioned, multiple variables play a role in determining how effective it is.
Ideally, you want to revisit and modify your budget accordingly throughout the year. It would help if you accounted for different trends and events that could render your original budget sub-optimal.
Result Orientation
Sure, profits are the goal of every business. Your budget should aim towards optimizing your income via operational improvements. However, that's not the same as obsessing over results.
Qualitative factors, like employee satisfaction and engagement, are also important. While they don't impact growth directly, they're still vital aspects of your business' performance.
Not Enough Time
You don't want to think of your budget as a problem, but you should still dedicate enough time to its planning. It's easy to use what worked in the past, but circumstances change.
You shouldn't leave your budgeting process to the end of the fiscal year. You want as much time as possible to evaluate every variable in all departments.
Lack of Versatility
Finally, this is somewhat of a continuation of the adaptation problem. We've seen too many clients relying on past years' budgets since they already worked.
Even with slight modifications, that's a horrible approach. It's a safe way to lose money since it encourages department expenditure for "inflating" next year's budget. Make sure you tackle every budget season from scratch.
What Should Real Estate Firms Look Out for in 2021?
The COVID-19 crisis has been a game-changer for everyone. We're still not in the clear after nearly a year, and countless sectors have changed permanently. Luckily, real estate has benefited in several ways, but that doesn't mean the coast is clear.
2021 promises better times. Vaccines seem to be on their way, and numbers from the last year were surprisingly positive. The key lies in maintaining that momentum. 2021 comes with its own challenges, and you must prepare for them.
The Impact of COVID-19 on the Markets
Mainly, fair property values have fallen. Reckoner values stayed near their levels before the pandemic. The result is tax calculations working with deemed incomes. Additionally, pre-sales lost volume because of lacking confidence from customers over project delays.
Naturally, the office, hospitality, and retail sectors were the main victims. Budgeting should focus on revitalizing the market amid easing regulations. For economic recovery, the real estate sector's revival is mandatory. That's because of the current demand for employment.
Stamp duties have also experienced several reductions across different states. Thankfully, it's boosted demand. Capital gain exemptions are a possibility, aiming to enhance demand throughout the country.
Finally, the digital transformation during the crisis has brought significant growth for several markets. Data centers are currently in high demand, so these projects' budgets will likely benefit from tax incentives.
What can you do to Prepare for the Budget Season?
Mandatory budget cuts for IT are understandable. Optimizing costs means working better with fewer expenses. However, handling this pressure effectively makes the difference between success and financial troubles.
The most important step is to clarify the real scope of your cut costs. Reality should be a key factor during preparation. Realistic expectations ensure you can meet your goals, and that requires honest forecasts and data analysis.
You need to develop an action plan for your stakeholders as well. Make sure to include several cost-saving alternatives in case something doesn't work. You, your team, and investors should understand how every method will impact the business.
Additionally, RealPage's blog has an excellent article about preparing for the budget season. Let's go through them quickly.
The Impact of COVID-19 on the Markets
Your first step should be to check whether or not the accounts on your general ledger are necessary. Many businesses establish more GLs than they really need.
Additionally, make sure you go through different accounts and groups. Some report structures might need changing.
Import your Data
Importing the right data—and properly—is vital for producing accurate budgets. A good importing process ensures you streamline your budget flow.
Before this step, create a proper schedule and import test data to review its accuracy. Check that all values have the right signs and are arranged correctly.
Assess Payrolls
Remember to update recent rates for employees, even if you're not adding departments or resources to your business.
Study current turnover averages and salaries to provide a competitive salary without sacrificing your budget. That includes benefits and payment periods per month.
Develop your Models
It would help if you clarified who's participating in the budget. You need to assign specific resources and permissions for your budgets as well as dates.
Your models should also include historical data without relying entirely on it. Determining which data makes into the model is as important as including it.
Worksheets & Calculations
Custom calculations and worksheets are usually necessary in cases when you're using various GLs. Remember to set up these customizations before you begin creating your budget. That includes formulas, fees, and statistics.
Review Budgets on Properties
Before acting on your entire budget, allocate the resources for a single property. Use this as your budget's pilot and review the results.
This first distribution should work as a test of your calculated budget. Also, run your Excel sheets and standardize your processes. With modern ERP, you may be able to run this inside your ERP – for example, MRI Version X or Yardi Voyager 7s.
Keep Checking
Finally, make sure your company produces variance reports to account for percentage variances over the year.
Additionally, check that the values for every month make sense. It's easy to forget about logging a month's value or repeat values from the previous year.
Making the Most Out of Budget Season
Despite what you might think, your budgeting period shouldn't be a challenge to overcome. You want to turn it into an advantage. Doing so requires the right mindset and responsibility. This article by the National Apartment Association is a great start.
Multiple variables make budget projections unpredictable. That doesn't mean it's less important, however—quite the opposite. They only make budget accuracy more important. Proper training and the right tools go a long way.
It would help if you used correct templates for calculations, but that's far from the only approach. Today, real estate companies have access to countless systems to make their lives easier. Platforms like Yardi, MRI, and Procore can streamline your budgeting season.
Not only can you centralize all the data you need. You can also integrate several solutions into your software suite for more features. This kind of implementation can be difficult, but it's one of the best investments you can make.
How can you Leverage the Best Software for the Job?
The biggest advantage of implementing property management software into your company is its versatility. You can find in-depth systems, like MRI Version X and Yardi Voyager 7s. They let you track every variable and status related to your properties.
Even better, they let you streamline your back-office functions. That means centralizing your entire accounting and financial management. You can also work with plans and modules tailored specifically for your needs.
The best way to take advantage of these innovations is to work with experts. Our consultancy services cover all the areas you need for effective integration:
Full implementation.
We are assessing the best software and features for you.
Training and onboarding.
ERP migrations.
Offshore help desks.
We offer a comprehensive solutions catalog for your company. Know what platform is right for you, and how we can help you budget better, while streamlining your work process and improving the productivity.