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Shelley Cernel2024-09-04 10:53:442024-09-06 09:43:52Future-Proofing Your Portfolio: The Role of Scenario Planning in CRE Decision-MakingIndustry-leading commercial real estate (CRE) firms maintain a rigorous reporting cadence to ensure properties are operating at peak efficiency and generating maximum cashflow. Depending on the asset type (e.g., multifamily versus commercial), this reporting cadence could be weekly, monthly, or quarterly.
Property performance is gauged through two critical lenses: operational and financial. Diving into the financial aspect, robust reporting begins with a well-structured chart of accounts (COA). This COA is the backbone of accurate, scalable financial reporting across the entire portfolio.
Chart of Accounts 101
The chart of accounts is an organized listing of all the financial accounts in a general ledger. In commercial real estate, the COA is established at the property-level and is created/managed by the property management system (PMS) or accounting software. Providing a structure for categorizing all financial transactions, the COA is typically divided into five main categories:
- Assets: These are the resources owned by the property that have economic value, such as cash, accounts receivable, and the property itself.
- Liabilities: These represent obligations or debts owed by the property, including loans and accounts payable.
- Equity: This is the net worth of the property after liabilities are deducted, showing what owners and investors truly own.
- Revenue: This includes all income generated from regular business operations, such as rent and other property-related earnings.
- Expenses: These are costs necessary to generate revenue, like maintenance, utilities, and property management fees.
Each category branches into sub-accounts, providing detailed insights into specific transactions. This hierarchical structure enables comprehensive tracking and reporting of financial activities, ensuring nothing slips through the cracks.
Using a Chart of Accounts for Financial Reporting Across the Portfolio
The chart of accounts is used to track and report financial transactions at both the property-level and portfolio-level. Ideally, the COA is consistent across all properties, enabling owners, operators, asset managers, and other professionals to make seamless, apples-to-apples comparisons of property performance without the need for manual adjustments.
However, the reality is often more complex. Most portfolios have several different property management systems, each with its own unique COA structure and financial accounts. For example, one multifamily property may categorize administrative fees under “Management Fees”, while another lists them as “Administrative Charges”. Despite being in the same portfolio, this inconsistency poses a significant challenge for accurate reporting on property performance – and that’s just one example! Such discrepancies demand time-consuming reconciliations and hinder the ability to gain clear, actionable insights, complicating the path to optimal financial management.
The Risks and Challenges of Manually Standardizing Your Chart of Accounts
The harsh reality is that most commercial real estate professionals have resigned themselves to manually standardizing their COA using spreadsheets. While this practice is widespread, it comes with several risks and challenges:
- Time-Consuming Process: Manually and repeatedly aligning financial accounts across different PMSs is incredibly labor-intensive, requiring extensive effort to ensure all entries match a “master ledger”.
- Data Integrity Issues: Manual standardization can lead to inconsistent data entries, errors, and discrepancies, severely impacting financial accuracy and decision-making.
- Unscalable Reporting: As operations change or the portfolio grows, manual processes become increasingly difficult to manage, disrupting workflows and posing challenges for generating reports.
- Direct Costs: A firm must pay its team members to perform these tasks each time financial reporting is needed, with costs quickly adding up over the year.
- Indirect Costs: Potential miscalculations from manual processes can lead to misguided strategies and costly consequences in the long run.
Accepting these risks can significantly undermine efficiency, accuracy, and profitability, emphasizing the need for more automated and standardized solutions.
The Undeniable Value in Automating Your Standardization Process
Utilizing software that automatically standardizes your COA across properties and PMSs offers significant advantages:
- Accuracy and Consistency: Removing the “human element” to standardizing your COA reduces the risk of errors, ensuring financial data is accurate and consistent. This not only saves time and resources but also avoids the repetitive tasks involved in correcting mistakes.
- Focus on Analyzing Data: Many professionals find themselves stuck in the 80/20 trap – spending 80% of their time collecting and standardizing data, leaving only 20% for analysis. By automating your COA, you can flip this ratio, dedicating more time to analyzing performance and extracting valuable and actionable insights.
- Proactive Decision-Making: Automated COA standardization provides real-time access to financial data across the portfolio, empowering stakeholders to make timely, informed decisions and take proactive measures before issues escalate.
- Apples-to-Apples Comparison: Standardizing your COA for similar asset types, such as multifamily or commercial properties, enables stakeholders to seamlessly compare property performance side by side and easily identify opportunities and risks.
- Reporting at the Portfolio-Level: With a 1:1 match of financials across asset types and PMSs, you can effortlessly report on financial performance at the portfolio-level. This enables you to create a portfolio average to benchmark individual properties, quickly identifying areas of underperformance and opportunities for improvement.
Embracing automated COA standardization transforms tedious manual processes into streamlined, efficient workflows, ultimately driving better portfolio management and more informed decision-making.
Take Back Your Time… Set It and Forget It
In commercial real estate, one thing is certain: new financial data will always need to be reported on and analyzed. Today’s market dynamics demand that owners, operators, asset managers, and other professionals optimize their time and stay laser-focused on improving property performance. Take back your time and boost your efficiency by automating the standardization process for your COA and financial reporting. Click here to schedule a demo and see how Lobby CRE’s Ledger Mappings enable you to set it and forget it.
Additional Resources
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Shelley Cernel2024-09-04 10:53:442024-09-06 09:43:52Future-Proofing Your Portfolio: The Role of Scenario Planning in CRE Decision-Making
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Javon Nathaniel2024-08-27 09:33:432024-09-06 09:44:38Mastering CRE Debt Management: Leveraging Technology to Optimize Cash Flow and Risk
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Javon Nathaniel2024-08-23 14:19:072024-09-06 09:45:33A Strategic Edge: How Savvy CEOs Are Using Asset Scenarios to Thrive in a Volatile CRE Market
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Javon Nathaniel2024-08-20 14:25:412024-09-06 09:45:214 KPIs That Successful Affordable Housing Firms Are Tracking (and You Should Too)
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Javon Nathaniel2024-08-13 14:12:392024-09-06 09:45:08CRE Core Questions: What is the Interest Rate Forward Curve?
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Javon Nathaniel2024-08-06 13:16:302024-08-06 17:37:25The Hidden Threat in Financial Reporting: How Manually Standardizing Your Chart of Accounts is Hurting Your Bottom LineLobby CRE’s Content Round-Up for Q1 2024
As we find ourselves at the threshold of a new quarter, it is the perfect time to take a look back at the topics that were trending in the first quarter of 2024.
In this content round-up, we’ve curated a selection of articles from our own catalog, as well as other industry resources like Forbes and Bisnow. From discussions on data analysis to predictions for the year ahead, these topics dominated the commercial real estate (CRE) landscape. Continue reading to catch up on any articles you may have missed!
1. CRE Property Management Systems: The Power of Consolidation
When it comes to managing CRE property management systems (PMS), many firms may be operating with multiple systems across their portfolios. This blog highlights the challenges of data silos and inefficiencies arising from decentralized PMS usage, emphasizing the hindrances they pose to operational efficiency and strategic decision-making. By consolidating PMS, firms stand to gain improved operational efficiency, unified data and reporting, and faster, more accurate insights.
2. Unlocking CRE’s Data Potential in 2024
Data plays a pivotal role in navigating the CRE market amidst uncertainties such as escalating interest rates and dwindling transaction volumes. This article covers key topics such as navigating data sources for actionable insights, breaking down internal data silos to improve efficiencies, and harnessing AI, BI, and HI to advance data utilization. Highlighting the importance of understanding various data sources and centralizing data management, you learn how to implement data-driven strategies in optimizing real estate operations. Watch the on-demand webinar here!
3. Accessing & Leveraging CRE Market Benchmark Data
In the tumultuous landscape of 2024, data-driven decision-making is more important than ever before. This article highlights the value of data in CRE operations and explores strategies for unlocking its potential, including leveraging third-party data for key insights and utilizing benchmarking for informed decision-making. Download the checklist here to get started!
4. Analyze The Right Data For Your Real Estate Investment
This Forbes article discusses the importance of analyzing the right data when making real estate investments, looking beyond the traditional focus on location. It suggests considering factors like job figures, population data, demographics, foot traffic numbers, and city tourism and projects to gain insights into the market. The author highlights the significance of understanding trends in job growth, population growth, and industry presence in an area to identify potential investment opportunities. Additionally, utilizing resources like studies on office occupancy rates, apartment occupancy levels, and transit studies can help to make informed decisions. By leveraging available data, investors can assess the potential for a location to yield significant returns on investment beyond just its geographical appeal.
5. 40 CRE Execs Tell Us How 2024 Will Play Out — And What They’re Doing To Prepare
This Bisnow article features insights from 40 commercial real estate executives on strategies they’re employing to navigate the challenges ahead. Despite the difficult circumstances faced by the industry in 2023, there’s an overall sense of readiness and determination among these executives for the year ahead.
Key themes from the executives include:
- Adaptation and Diversification: Many executives emphasize the importance of adapting to changing market conditions and diversifying their portfolios to mitigate risks.
- Opportunities Amid Challenges: While acknowledging the challenges, several executives also highlight the potential opportunities that arise from market fluctuations and disruptions.
- Focus on Community Engagement: Some executives stress the importance of community engagement and collaboration in development projects to ensure positive impacts on local neighborhoods.
- Strategic Investments: Executives are focusing on strategic investments in stable asset classes and geographic diversification to weather uncertainties in the market.
- Operational Excellence and Customer Service: There’s a renewed emphasis on operational excellence and customer service as a means to add value and differentiate in the market.
- Long-Term Vision: Despite short-term challenges, many executives are maintaining a long-term vision and planning ahead for future market conditions.
Overall, while acknowledging the need to “survive till ’25,” these executives are also looking for ways to thrive by adapting their strategies, focusing on operational excellence, and identifying opportunities in the midst of market uncertainties.
Stay Up-to-Date With Lobby CRE
Stay tuned for more content and resources from Lobby CRE in the next quarter ahead! Visit our resource center to view our full catalog of best practices and thought leadership content for the commercial real estate industry.
