Budget Your Business Toward Success

When it comes to effective budgeting among commercial property managers, it’s never too early to get started. And, when you start, you need to revisit the past in order to get a glimpse of the future.

“There is significant value in the review of prior years’ performance to develop a succeeding year’s plan,” says a Fort Washington, Md.-based commercial property manager who consults with CPMs on effective budgeting and other business needs. “That said, whether they’re dealing with capital expenditures or general repair and maintenance, property managers tend to be more reactive to the issues versus being proactive. Budgeting is not a ‘once-a-year’ task. It should occur constantly during the operating year as bills are paid and tasks are done. Small-business property managers can get so busy with the day-to-day schedule, but budget planning should not be a sprint, but a marathon.”

It’s wise to start the budget process at least four months in advance. Consider well-planned budgeting an exercise to help your commercial property management business succeed, says Robert Toothaker, president-elect of the Chicago-based Institute of Real Estate Management (IREM), which represents more than 8,600 commercial property managers. “Whether our clients are institutional investors, independent owners or non-profit owners, we are all expected to budget effectively for them, and align that budget with the tasks at hand,” says Toothaker. “Successful commercial property managers are very goal-oriented. They understand the equations that are part of their business every day and know how these equations can help them provide the best quality of experience—whether it’s dealing with a retail center, office or another kind of commercial building.”

Timing is Everything
Toothaker suggests starting the budget process as early as half a year ahead of your next fiscal year. This way, the property manager can get a sense from clients as to whether projects will replace, for example, all parts of a particular building area or just a portion of them, whether a long-discussed remodeling project will launch the following year or whether it will be delayed for another, as well as other critical budgeting points. If these conversations take place too late, it will hinder a property manager’s ability to get the right budget in place.

The property manager also needs to be flexible with respect to his or her clients’ changing environment. “You need to get a read on what’s happening in their world all the time,” Toothaker says. “These factors will impact your budget. And you need to keep in mind that the budget you eventually come up with isn’t iron-clad. You need to visit it all the time to adjust it for these factors that keep changing the picture.”

The same environmental forecasting applies to your own business needs. “You need to plot out ahead how much you’ll spend on every item,” Toothaker says. “There are too many cases where owners fail to budget effectively, then try to operate properly. It’s a prescription for failure. You think you’re doing well, for example, and then you don’t factor in a cold winter—you’ll be blindsided by heavy snow blowing and salt-spreading expenses.”

Budgeting is Not Forecasting
One big mistake is to confuse the concept of budgeting with forecasting. In reality, these are two different tasks. “The forecast is where the money is going to come from. The budget is where it's going to go,” says Lanny Goodman, a planning consultant on budgeting for numerous small business owners. “They are very different tasks. They should never be bundled together under the term ‘budget.’”

Annualizing forecasts often are useless and sometimes dangerous, Goodman says. “People get used to the fact that they have a budget to spend and lose sight of the fact that their spending ability must be dependent on whether the projected revenue shows up or not,” he says. “Instead, I strongly recommend developing 15-month rolling quarterly forecasts and budgets. This accomplishes several things: First, it emphasizes the continuity of the business—businesses don't start Jan. 2 and end on Dec. 31. Second, we reset the forecast every quarter based on the realities of the business performance. Third, we adjust expenditures accordingly. Every quarter, we go through the exercise again of updating the forecast and budget and pushing it out a quarter so we always have at least twelve months of financials in front of us.”