Budget forecasting is one thing that many portfolio managers don’t often relish. Investors demand to see how expenses are tracking with the budget, requiring operators and third-party managers the often arduous task of crunching numbers and looking into that crystal ball.
“It is a task that all too frequently is ‘have to’ instead of ‘want to’. ” says Christine Fisher of RealPage, Inc.
Forecasting – either weekly, monthly or quarterly – enables leadership to see a snapshot of where the portfolio financially and strategically headed. Revenue and expense forecasting help properties plan and make adjustments as market conditions change or stay the same.
Predicting what lies ahead is no picnic, especially if the forecasting process is done manually, like many in today’s home leasing industry. Typically, forecasts are done using internally created spreadsheets that require substantial manual preparation time. Often, they are subject to frequent formula errors. When all is said and done, more time can be spent preparing the forecast format instead of the analysis that tells where the asset is headed.
And a mistake attributed to human error can cost the company money and resources.
“Failing to forecast correctly can increase risk of cash flow shortages or missed opportunities increasing rental income based on changes to the market,” Fisher said.
Market and crime conditions, effective rent, repairs, turnover, utilities, maintenance and other operational expenses can impact the financial success of an asset. And because every property is different, a sophisticated forecasting tool can be highly effective if used in conjunction with integrated and well-designed processes, Fisher says.
“Improved forecast accuracy leads to many downstream improvements, not only financial, but also in operations, customer service and asset management,” Fisher said. “When problem areas are identified early, action can be taken to either address problem areas or take advantage of an income opportunity such as raising rents beyond what was budgeted.”
Using an automated forecasting tool simply offers a better look for properties to predict budget performance, Fisher added. She offers five ways to make any forecasting process easier and quicker:
Start with clean, accurate data
Bad data that is not truly representative of actuals or realistic projections will create problems with any forecast. workable baseline and to update it to identify potential trends.
Access data easily and seamlessly
Easy access to data is essential. Otherwise, the forecast expert is pouring through page after page of spreadsheets. An automated forecasting tool can make capturing and importing data, quick and easy. This will also enable easy modifications to be made, with little manual manipulation needed.
Plan ahead by tracking performance
Tracking prior performance is critical to forecasting accuracy. For example, when projecting repair expenses, a detailed, accurate overview of previous maintenance bills will enable the forecaster to apply the most up to date, realistic numbers. Tracking functionality within the budget forecasting tool offers a current view of performance for utilities, maintenance and other expenditures, as well as for revenue.
Share data through web-based applications
Use a web-based tool that enables your peers to have quick access to accurate information. Data can be shared with a click, instead of managing copies of manual spreadsheets between key stakeholders at different locations.
Adjust for seasonality
Note that expenses and revenue fluctuate depending on the time of the year, so being able to access prior performance quickly is essential. Remember, for example, that utility bills fluctuate during peak summer and winter months, which also can affect repairs. Keep that and other seasonal expenditures in mind when forecasting for the seasons ahead.
To forecast for the short and long terms, accuracy of data and the ability to access it and create manageable reports is essential, Fisher says. A good forecast can reveal money that could be getting away from the management team.
“Forecasts can allow managers to identify where profits may be hiding by closely examining property past performance and challenge them to identify what operational or rent influencers can be adjusted to improve financial efficiency.”