Buildings, budgets and business plans: How property management and accounting can protect property owners
As any homeowner will tell you, you’re often forced to spend large amounts of your hard-earned money in some very not-fun ways. Replacing the furnace, cleaning out the septic tank, repairing the roof—we’ve all been there.
Property owners face the same obstacles, but the stakes can be much higher. We all take the elevator for granted, for example, but major repairs on it can easily hit six or seven figures—and that’s a painful check to sign.
That makes it even more important to have a robust property management business plan backed with solid accounting that will help you budget for those inevitable big-ticket items.
Plan ahead and build a better business plan
Owning and managing property requires a great deal of time—and the ability to wear many hats. A comprehensive business plan should address the various financial considerations and contingencies to at least eliminate some of the unpredictability.
Make sure your property management business plan contains some key elements:
- Net income for the current year, including cash flow
- The projected net income for the next year, detailed by month
- A projected balance sheet, forecasting cash balance, payables and receivables
- Planned capital expenses
- Cash flow projections by month for the current year and the next year
This is also a good time to do your best to outline all anticipated expenses—not only in the year ahead but also a few years down the road. This should be everything from snow removal to a major plumbing overhaul or a new A/C unit. By examining your property’s life cycle for maintaining core systems and infrastructure – and calling in the pros when necessary – you’ll be able to assemble a more accurate forecast that will make your business plan more informative and helpful in decision-making.
Tap into team power
Creating a plan is one thing; implementing it is quite another. If you’re not working with a property manager, now’s the time to consider it. Michael Episcope writes in Forbes:
“The prospect of losing money to delinquent renters or empty units often makes it worthwhile to seek the skills and expertise of a property management company. But if you do hire a property management company, it’s critical to pick the right one. Investors must look at the firm’s team, track record, fee structure and the other assets they manage, as well as determine if their investment’s business plan will warrant the profits they lose to the management costs.”
Outsourcing property management is most effective when those services are backed by robust accounting services. After all, collecting rent and paying bills are helpful services, but they need to tie back to your overall business plan. The firm should be able to develop the business plan and the budget to determine the cash flow you can expect for the year.
Accounting should work hand-in-hand with the property management team to understand what big-ticket items are on the horizon so the appropriate amount of cash can be set aside. This helps set the expectations for the level of cash distributions you’ll see from the property, or possibly what you’ll need to contribute to the property to ensure major expenditures are covered. Or, it may mean postponing one large repair so you can tackle a more urgent need this year.
The property management and accounting team also produces monthly financial reports and quarterly in-depth analyses to ensure you’re aware of not only what’s happened in the previous months but also what’s coming up as you move forward.
Finally, don’t underestimate the additional negotiating power that comes with a skilled property management and accounting team. Look for a firm that can leverage relationships in town with multiple banks and lenders to get favorable fee arrangements and above-market interest rates for invested funds. Experienced commercial real estate firms bring a lot of horsepower to the table to gain economies of scale with suppliers you might not be able to accomplish on your own.
Learn how accounting services can help
I have the pleasure of working with many property owners here in Kansas City, and I’ve learned that all these properties have their own personality. As we get to know them and learn how to work with each ownership group, we’re able to understand the wants and needs of the underlying ownership and the building itself—and then how to accomplish all of that financially.
When we look at a building, everybody has their own perspective. Mine is looking at it from a cash flow and value standpoint. Working with our property managers, we’re committed to partnering with owners to build a business plan that not only minimizes risk but also ensures the long-term success – both physically and financially – of your investment.
Paying for elevator upgrades will never be fun, but we can help make it less painful.
Joe Kennedy is the Chief Financial Officer at Copaken Brooks, a full-service commercial real estate firm headquartered in Kansas City and serving the Midwest. The company’s full suite of services includes: property management, construction management, leasing (office, medical, retail and industrial), investment acquisition and sales, tenant representation and HQ relocations, condo management, asset management, and development. Share your thoughts on our Facebook page or on Twitter @CopakenBrooks.