FINANCE
A Reinvestment Approach to Budgeting By: Chris Lelle
As we draw near to another budget season many of us dread the long hours that we are about to endure while creating our budgets. We are working to create a budget that meets the needs of the building and the financial requirements of the owners. All too often we end up with a budget that has just enough money to pay the utility costs, insurance, security costs, janitorial costs, and maintenance costs. There is very little left in the coffers for projects to replace aging equipment or to fix the items we know are nearing the end of their life.
Changing Perspective Is it possible that we can use this year to be the start of a new process? Can we look at budgets from a different perspective that will help better the lives of the tenants, the management team, and the owners alike? The simple answer is a resounding YES! What does this entail you might ask? It involves looking at the budget as a road map to manage the property the way you need to. This might sound like a difficult task given that you’ve always included the items that need to be completed only to have them removed year after year due to budget limits. Let’s look at the budget from a different perspective. Let’s look at it from an owner’s perspective and use the items we know we need to complete as investments. Our year one investment approach to the budget needs to include items and projects that have a short payback of one year or less.
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Insight • Issue 2, 2022
Such a short payback seems like a daunting task, and we often think that there are not many things remaining to do at our properties that have such a short payback. This is the part where we need to get creative and look at things such as our staffing levels, staff experience, tools on hand, upcoming maintenance, equipment review, and recent energy audits. All energy savings projects that you can include in the budget need to be implemented as soon as possible in said budget to allow for maximizing the recovery during the budget period. Some additional budget considerations you need to consider are tenant caps on controllable/ noncontrollable items, tenant base year expenses, and amortization of energy savings costs. Amortizing projects that result in energy savings is a way for an owner to recover the expense for an allowable capital project over the useful life of the equipment.
