OMG...Budgets are coming!

July is about the time we start thinking of budgets for the next year.  That process with some companies starts as early as August/September, which is right around the corner.  Budgets are one of the most feared tasks within the duties and responsibilities as professional property managers.  

The only thing we have to fear is fear itself… and budgets!  Ok, so maybe FDR said it a little differently.  As property managers we wear many hats with one of them being experts in budgeting, or so we are supposed to be.  Sleepless nights and long hours with visions of numbers are spent, only to have our hard work changed or questioned.  Of all the courses we take and are offered they tell us how to be leaders, how to write and understand financial reports, how to manage risks, how to market our communities, and a host of other areas.  One gap in the management fence seems to be in providing the tools in not only how to write a budget, but how to sell one.  There is an art to selling a budget and even though changes may be made, the challenge is to provide a budget you can be proud of with accuracy and detail that makes it less likely it will come back looking totally different than the one you submitted.

Through understanding budget principles, adding backup and details to substantiate your numbers, understanding goals before the process is started, and having a budgeting map, you will find the budget process far less intimidating and something not to fear. The goal is to assist you in preparing for the upcoming budget season and removing some of those fears.  Some of the key aspects to budgeting are as follows:

•  Budgeting should not be thought of as an event, it is a process.  Teach your managers to set up a budget file for the next year, immediately after completing their budget for next period.  As an example, if you have just completed your 2011 budget and it is now approved, set up file for the 2012 budget. This way during the year they can put in notes and information (including some of the things on their wish list removed from the budget just completed).  This can include things they see throughout the year, photographs, news articles, changing maintenance issues, trend information, marketing data, etc.  By the time the budget process is started, you already have a significant amount of information to use and provide as backup.
• Understanding why we budget can sometimes enlighten us as to how we need to budget.   Tell them the why as well as the how.  Give them goals, just don't tell them to prepare their budget.  They cannot hit a target if we don't let them see it.  
• What is a CBA and how can it assist in the sales process?  Teach them  what a Cost Benefit Analysis is and how it can be used to "sell" their budget and items within their budget.  Remember upper management and owners are interested in one thing (mostly)....that is cash flow and NOI! 
• What details and information make your budget more justifiable and less the opportunity for change?  This includes photographs with notations and proposals, specifications that detail what is included in a proposed project, reliable market trend and data information, and what was given as goals and objectives and how they fit into the budget presented.
• How do photographs play a part in your presentation, and how to tie them to your budget?  They say a thousand words and tell a story.  If you are having roof issues, provide pictures that tell the story.  Use Photoshop to place arrows on photos identifying areas of concern or safety identification markers.  I have even had managers put together a Powerpoint presentation with their budget that was extremely effective in selling their budget.
• What is the best way to present a budget and what tricks can be the icing on your budget cake?  The words we use and how detailed the budget is will be the difference between something being considered and something they will take our or disregard.  An example of how effective wording can play a part is as follows:  

 "Mr/Mrs Owner.  I was given the objective and primary goals for preparing the budget of ABC Apartments in the coming year.  With these goals in mind and your desire as communicated to me to make sure the asset is maintained at the highest level, we have several exceptions not allowing us to meat the cash flow numbers.  While income can be attained and operating expenses carefully scrutinized to insure they are minimized, your objective and desire to maintain a high level of asset preservation cannot be met without consideration of the following exceptions. 

1. We have two roofs this year that have gone beyond the repair stage based on expert and comprehensive evaluation.  The loss of income from four residents this year (which has occurred, based on feedback received) would more than pay for the required replacement.  The attached photographs depict the severity of the issue, however, we would be more than happy to assist you on a personal visit to verify the information.
2. Attached are photographs of our parking and drive areas, which as you know we deferred repair in the budget last year.  Unfortunately, the deferred funds estimated at $58,000 if completed this year have increased for the coming year.  Weather and use conditions as well as expansion of some of the temporary patched areas per your request have created a higher level of work, and do have an impact on the aesthetics and appearance of the community from both a prospect and resident perspective.  The lowest estimate we have for inclusion in the coming year budget is $79,000.  
3. Three of our four direct and primary competitors completed forms of interior renovations in this last year.  Photo's to substantiate this are included, as well as photo's depicting relevance of ABC Apartments.  Reviewing objections from prospects who did not rent at ABC Apartments, the reason to lease at a competitor came down to upgraded conditions at the competitor were documented in over twenty prospects and has had a direct impact on reaching occupancy and income goals.

Selling a budget is different from providing a budget.  It all comes down to the details and documentation and supporting the assumptions with something tangible upper management or owners can relate to.  Teaching and coaching our managers the importance of this point combined with adhering to the principle it is a process, many times removes the intimidation factor from budgeting.  This is why I made it one of my primary education topics on hot to "sell" a budget, and not how to "prepare" a budget.