June 11, 2019
How to Set Profit Goals in Property Management
When running a property management company, setting profit goals can be challenging even with all the property accounting software in the world. While your property accounting software is vital to establishing, tracking and monitoring profit goals, you need to establish both the goals and the strategy to reach them first.
Here’s a guide to help you assess the health of your company and set profit goals.
Step 1: Know Your Costs
Keeping a sharp eye on all your expenses gives you insight into how much money is flowing out of your company and why. In the property management business, maintenance is often a big cost-center. Be sure to separate planned maintenance costs from unplanned costs. Unplanned work orders give you a window into equipment failures or needed building upgrades. (Or, maintenance that isn’t being performed correctly.)
When doing your audit of maintenance costs, make sure you ask these three questions:
- What did it cost?
- Where did the money go?
- Is this the best use of our money?
The last question is critical – are you placing too much emphasis on non-revenue generating activities? Are you using technology to streamline and automate as much of your operations as possible? Can you negotiate better terms with your vendors? Are you taking advantage of every early payment discount to further drive down costs? At the end of your cost audit you should have a good idea of potential problem areas, where you can improve and where you are doing well.
Pro tip: Use property accounting software to stay organized and on top of your expenditures. Weekly and monthly reports will ensure that you are on top of all outgoing funds.
Step 2: Understand Your Cash Flow
In the understatement of the year, the ability to generate money and keep it flowing in is vital to your company’s fiscal health. Look at any seasonal ups and downs. Know your rent roll. How many tenants are behind on payment? How can you tighten up the cash-to-bank time and reduce rent delinquencies? (An online payment platform definitely reduces collections.) What other areas of auxiliary income do you have? What can you do to reduce vacancies or turnover times? Do you have enough building owner clients? What if one has to sell their building, will you still have enough income to operate during this slower period until you can fill your pipeline again?
Step 3: Can Margins Be Improved?
Very quickly, operating margins are when you take your gross revenue and deduct operating costs. Operating margin is basically how much cash you have left over after running the day-to-day business to pay down debt, make improvements and pay income taxes. Understanding how this metric changes on a month to month basis can show you where you have revenue leakages. The goal is to be constantly trying to improve your margins while still maintaining and improving the value of your buildings.
Step 4: Use Your Dashboard to track KPIs.
If you are tracking metrics in Excel spreadsheets, stop now. It only results in “data silos” and offers no transparency and very little accountability. Use your property accounting software to set up KPI dashboard reports. For example, at a glance you should be able to see various arrears KPIs – the total number of arrears, arrears by X number of days, and by percentage of arrears per building or per portfolio. Your vacancy KPIs should include the number of vacant units, days vacant, lost income, market rent vs. previous tenant’s rent, net lease exposure and lease expiration dates.
Step 5: Putting It All Together
With this insight into your business you are in a better place to more accurately forecast your future. Set SMART goals for:
It goes to follow that when you increase revenues, your business expenses will probably go up as well. This could include things like adding new services to your properties or hiring more property managers or business development people. The markup you charge customers or tenants for your services may need to be adjusted to generate more profit. Look at your expenses from the last few years and look for areas to reduce or better control costs through streamlining operations and improving efficiencies.
Target a clear goal for the income for your property business. If you say that you want to increase your profit by 8% over the previous year, then you first need to figure out how much more you need to collect in income revenue to reach that goal.
Decide how much profit you want your business to generate over the year. Whether you use a specific dollar amount or a percentage increase over the previous year’s sales, it needs to be defined. If it isn’t, you’ll never know whether you have reached your goal or not.
How Property Vista Helps
If you are looking for property accounting software to help you track your goals and stay on top of daily financials, we can help. Designed by property professionals for property professionals, it brings together all aspects of your business from accounting to maintenance to marketing so that you can make smarter decisions faster. See pricing here and set up a demo.