Manage...to have it all, part 1 - The budget

As the manager, one of the best tools available to you is your budget.  It provides you with the blueprint for the expectations for your property's performance in the coming year.  A budget will provide you with a guideline for the following, just to name a few:

• Rental increases
• Renewal increases
• Occupancy expectations
• Concession guidelines
• Advertising programs
• Expense guidelines
• Capital improvement plan

While I understand that a budget can be intimidating and there are many professionals out there who break into a sweat just thinking about the budget process, the more familiar you become with the budget the easier it will be to work with. 

When I worked with Lane Company, I was fortunate enough to participate in a budget workshop.   During this workshop, I learned what each budget category meant, where the numbers came from, and how to create a budget.  As a result of that budget workshop, I was confident with my budget and knew that going forward the budget process was never going to be intimidating to me again.

As you start your new budget year, I would suggest the following:

1. Understand the chart of account category and where the number comes from. For example:

• Gross potential - total of all of your apartments at full market rent
• Gain/Loss to lease - difference between market rent and lease rent

Review the account categories that you are unsure of with your supervisor to better understand what they mean and where the number comes from.

2. Review the budgeted income to determine the following:

• Is there a rental increase budgeted? If so, when and how much?
• What is the expectation for renewal increases?
• What are the occupancy projections for the year (or vacancy)?
• Are there concessions budgeted? If so, how much and for what months?
• Bad-debt write-offs - what are the expectations?
• Other income - what is the budget for late fees, term fees, and other resident charges?
• Miscellaneous income - what sources of miscellaneous income are budgeted? For example, if you are budgeted for vending income, how is the money received and from whom?

Once you have reviewed the income and understand any income fluctuations, you can set up a calendar to outline them.  For example, if you get cable income on a quarterly basis, you would want to put that one your calendar as a reminder so that you can follow up with the cable company prior to completing accounting month end for that period.  Also, if you know what your occupancy projections and renewal expectations are for the year, it is easier for you to establish your leasing goals and objectives.

3. Review your expenses to determine the following:

• Do you have huge increases within the categories? If so, what does that cover? For example, if you have a large increase in advertising for one month, what is to be purchased during that period?
• Will you be using an outside service for apartment turns? If so, how much is budgeted for the service? To be more specific, what is budgeted for a carpet cleaning? Apartment paint? An apartment clean? How many are budgeted? Knowing these things will help you when selecting a vendor for the service.
• What contract services are budgeted? Are there fluctuations? What do they cover? Again, you will be able to better negotiate contracts when you know what is budgeted?

As with the budgeted income, you would add any expense fluctuations to your calendar as well. 

4. Review your property improvements and capital budget to determine the following:

• What capital improvements are planned for your property? When are they budgeted for?
• What apartment improvements are budgeted for? To include, how many carpet, appliance, cabinet, etc. replacements are budgeted for the year.

As most companies have a capital improvement process that includes obtaining comparable bids, vendor selection, and contract completion prior to the work being completed, you need to make sure that you are properly planning for the capital work on your property.

Now that you have reviewed your budget and better understand where the numbers are coming from and any fluctuations that occur, you should meet with your team members to discuss the plan for the year.  The plan could include occupancy expectations and turnover projections, capital improvement projects anticipated, contract service agreement review, etc.  The better you and your team understand the performance expectations outlined in your budget the more successful you will all be.

As you begin the new budget year, it is never too early to start planning for next year's budget process.  I suggest that you start a 2010 budget file.  Within that budget file, I would place copies of all licenses and fees the property incurs, current copies of service and advertising contracts, and vendor flyers for services or projects that you might want to get bids for in the future.  That way, when you go to begin the budget process for 2010 later in the year, you will have a head start.  This budget file is especially helpful for Property Managers and management companies who are new to the property.

Remember, knowledge is power!  Do your homework now and you will be better prepared to meet and exceed the expectations set forth in your 2009 budget.

Next post will be:  Manage...to have it all, part 2 - The Staff