How to Organize your Real Estate Budgeting and Forecasting

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 real estate 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.

Expenses to be Included in Your Real Estate Budget

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.

• Capital spends – The expenses your business incurs in acquiring new properties, major assets (like maintenance equipment), maintenance costs, development and renovations, vehicle fleet for business operations, etc., are counted as capital expenditures. You need working capital for these activities, which is where budgeting and forecasting prove to be highly useful
• Recurring expenses – If you employ staff for looking after your properties, you need to pay the service staff – the security guards, janitors, administration, support staff, etc. Expenses that go as payroll are counted as recurring expenses. Ensure that your business account has enough rolling capital for these expenses
• Non-recoverable expenses – These expenses are the ones spent on repairs, marketing, legal fees, and paperwork charges, etc. Your business cannot recover such expenses from the tenants. Hence, they are classified as non-recoverable. It is important to allocate some working capital to any such unprecedented spend that comes up – budget forecasting helps you do that
• Recoverable expenses – The expenditure on a property that you can recover from the tenants is a recoverable expense: utility bills are a good example. Budgeting accounts for this tenant rent in its forecasts, giving you a better picture of where your business will be in the near future

So, how to account for all the expenses listed above and get budgeting and forecasting right? Let’s discuss some tips.

Tips for Successful Budgeting

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.

It is Important to Have a Detailed Portfolio Goal

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.

Accuracy in Year-End Forecasts Helps See the Real Picture

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.

Leave no Stone Unturned

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.

Accounting Software to Help with Real Estate Budgeting

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 software allows you to pick which accounts you want to include in budgeting
• You can transfer budget figures or expenditure figures – whichever you like – to an Excel spreadsheet from the general ledgers. This makes it simpler to work with the numbers
• Once the numbers are on Excel, budgeting and forecasting are quick and straightforward. The software takes no time to produce forecast projections for the specified period
• The software also helps project revenues accurately by taking into account every piece of income your business generates
• Create budgets with accurate inflation estimates and produce reports that are potent with budget data.

Conclusion

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.

About Us

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.

We invite you to experience finance and accounting outsourcing through us.

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