Budgeting is not easy. Each year brings its own set of challenges. That's why SmartRent brought together a panel of multifamily industry leaders for a candid chat about the nitty-gritty of financial planning. From crunching numbers to getting your team on board with new tech, these experts shared invaluable insights.
To start, we polled our panelists about what keeps them up at night when it comes to budgeting, and the answers were pretty clear: Managing rising costs is the biggest hurdle, followed by prioritizing strategic spending, reducing costs, and, understandably, navigating unpredictable market conditions.
Let's dig into the insights shared by our expert panel:
1. Focus on what you can control
The panelists emphasized focusing on what you can control in your budget and prioritizing the areas where your decisions have the biggest impact. They pointed out that while you can't control the rising costs of utilities, you can control how efficiently you use those utilities. You can't always predict what renovations will be needed, but you can prioritize preventive maintenance to avoid costly and emergency repairs down the road. Essentially, it's about being proactive and strategic with your spending. You create a more resilient budget by focusing on your sphere of influence.
2. Invest in the right tools
While Excel has been a staple for budgeting, our experts emphasized the benefits of more advanced tools. As one panelist put it, "Excel hell" can lead to inefficiencies and errors. Modern budgeting software can streamline processes, improve collaboration and provide real-time insights. However, they noted that the transition doesn't have to be abrupt—the key is finding tools that enhance your budgeting process and save time for more strategic thinking.
3. Understand that data is your friend
To really nail your budget, the panelists advised going beyond just crunching last year's numbers. They stressed the importance of digging deeper and looking at the big picture.
Our experts recommend investigating anomalies. For example, if maintenance costs steadily rise, it could be a sign that preventive maintenance is lacking. Noticing trends will help you anticipate future needs and allocate resources accordingly.
4. Set realistic financial goals
Setting realistic financial goals sounds basic, and it is. It's also crucial for budgeting success. The panelists emphasized that your budget needs to account for potential challenges, economic uncertainties and resource limitations.
They also noted that this doesn't mean you can't be ambitious! It's about finding the sweet spot between aspiration and practicality. Realistic expectations can help you avoid overspending and set the stage for a successful budget year.
5. Adopt a driver-based approach
The experts suggested thinking of your budget like a road trip. You've got your destination (financial goals), but how do you get there? A driver-based approach focuses on the "vehicles" that will get you there—the key factors that influence your financial performance.
Instead of just looking at the end result ("reduce maintenance costs by 5%"), they advised delving into the drivers behind that result. What actions can you budget for that will contribute to that reduction? Is it preventative maintenance, staff training or upgrading equipment?
6. Prioritize based on strategic objectives
Our panelists stressed that prioritizing your budget is about making sure every dollar you spend goes towards your company's long-term goals. They suggested picturing your budget as a roadmap for your finances: you know where you want to go, but you have to make sure your spending decisions keep you on track.
This means saying "no" to things that don't move the needle. For example, if your goal is to increase resident retention, investing in upgraded amenities might take priority over a fancy new landscaping project.
7. Check in on budgets regularly
Our poll revealed varied practices in budget review frequency, with monthly checks being the most common at 54.5%, followed by weekly at 27.3%.
The panelists stressed that the frequency often depends on company culture and available tools. More importantly, they emphasized understanding the 'why' behind these check-ins. For property managers, linking these reviews to operational goals can make them more meaningful and actionable.
8. Harness the power of AI (with realistic expectations)
While AI holds promise for budgeting, our experts cautioned that its capabilities are still developing, particularly for complex data analysis and math.
However, they see near-term potential in two areas: variance analysis and performance narratives. AI could help identify trends and draft initial reports, saving time for human review of exceptions. The panelists emphasized that it's about supporting, not replacing, human decision-making in the budgeting process.
Bonus: Start with the pro forma for new properties
During the Q&A, a valuable insight emerged for those facing the challenge of creating a budget for a property that's never had one before. Our experts advised starting with the developer's pro forma. This document outlines the financial projections used to secure funding and can serve as a crucial baseline for your budget. Understanding these initial projections can help you set realistic targets and align with investor expectations from the outset.
Learn from real-world experiences
Our panelists shared personal anecdotes that shed light on budgeting challenges. One expert related the experience of teaching budgeting to teenagers using allowance apps, illustrating how budget constraints play out in real life. These stories remind us that budgeting is a universal skill, applicable both in our personal lives and in property management.
Budgeting doesn't have to be a beast
Take charge of your budget! To wrap it up, the most important points shared by our expert panel are to understand the factors that impact your bottom line, set realistic goals, and focus on the key drivers that will get you there. Regularly review and adjust your budget as needed, and you'll stay on track. And remember, with the right tools and a proactive approach, you can create a winning budget that drives your organization towards financial success.
To hear it straight from the experts, check out the full webinar. And if you're curious how SmartRent's smart technology can help you save time and money while keeping your residents happy, request a demo from our team. We'll be happy to answer any questions you have.