Finances are a good standard to measure how well your business is doing – they tell you how much capital your business stands on as of now. While the current financial situation does reflect the status of your business, it does little to help maintain a healthy bottom line throughout the year.
This is where budgeting and forecasting come in. Real estate budgeting is a method where you segment up the capital available for business development and operation and allocate it to various activities according to the financial obligations, priority goals, and target lists. Budgeting helps businesses ensure that your business achieves the quarterly and yearly targets it has set by using the available resources optimally.
Budget forecasting, on the other hand, is a process that gives your business its financial view of the near future, based on its performance now. Forecasting in budgeting equips your business with the information needed to make sound decisions with respect to spending and resource allocations.
Knowing where your business financials stand now and where they are headed over the next quarter is a valuable guide to plan activities like acquisitions, new investments, closing deferrals, and accruals, etc.
Let’s take a look at various expenses that go into real estate budgeting.
Real estate is a vast industry with expenses as varied as properties and their locations! However, there are some standard expenses that are incurred everywhere. Let’s see what they are.
So, how to account for all the expenses listed above and get budgeting and forecasting right? Let’s discuss some tips.
It isn’t always necessary to plan everything through a microscope; with that said, a little attention to detail helps your business sail through smoothly.
The vision and mission you attribute to each of your properties should be quantifiable in achievable numbers with just a touch of ambition. Saying that you expect to grow by a certain value by the end of the year is extremely vague and isn’t actionable. How are you planning to achieve that number?
In addition to budgeting and forecasting for this goal, you will need to look at allied expenses – the hikes in labour costs, material costs, logistical issues, etc. and account for those as well in your growth plan for a portfolio.
Anything that starts on the wrong foot is bound to go downhill. Before the new year begins on your business’s financial statements, do a review of the year gone by.
Are all the expenses accounted for? Are all the revenue accruals closed? Is the rental revenue up to date? Is there anything pending on liabilities? Accounting for these numbers helps you get an accurate picture of the growth of your business and plan your goals for the next year accordingly.
Numbers play a funny game when averaged, overlooked, or ignored. Real estate budgets tend to snowball if pegged on averaged values – simply because the nature of this business is fraught with variables.
To account for the seasonal changes, rent hikes, non-payments, payroll hikes, etc., it is imperative to closely examine all the numbers on the statement, tally them and then proceed with budget analysis.
Number crunching at this level can be a little overwhelming. Today, there are endless budget forecasting software solutions that help with budgeting and forecasting in the real estate industry – let’s take a look at how:
The performance of a business depends a lot on how much it reflects on its “actions” – the good and bad money decisions – and how it responds to them. Real estate budgeting is a complex activity, and it helps to have budget forecasting software to do the tough math while you plan and strategize for growth, informed with the data the software produced for you.
OHI is a fifteen-year-old real estate services company working with 50+ commercial and residential real estate developers, funds and property management companies across USA. Our deep expertise in real estate accounting, financial analysis, lease administration and asset management has helped clients cut associated costs by 40-50%. We currently provide these services to a portfolio of 75000 units across clients.
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