Financial Reports
One of the primary responsibilities of a Property Manager is maintaining financial reports, including an operating budget, cash flow report, profit and loss statement, and budget comparison statement.
Operating Budget
An operating budget is the projection of income and expense for the operation of a property over a one-year period. This budget, developed before attempting to rent property, is based on anticipated revenues and expenses and provides the Owner the amount of anticipated profit. The Property Manager and Owner use the operating budget as a guide for the property’s financial performance in the present and future.
Income
Income includes gross rentals collected, delinquent rental payments, utilities, vending contracts, late fees, and storage charges. Any losses from uncollected rental payments or evictions are deducted from the total gross to arrive at the total adjusted income.
Expenses
Fixed and variable expenses include administrative costs (including building personnel), operating expenses, and maintenance costs. Fixed expenses that remain constant and do not change include employee wages, utilities, and other basic operating costs. Variable expenses may be recurring or nonrecurring and can include capital improvements, building repairs, and landscaping.
Cash flow report
A cash flow report is a monthly statement that details the financial status of the property. Sources of income and expenses are noted, as well as net operating income, and net cash flow. The cash flow report is the most important financial report because it provides a picture of the current financial status of a property.
The formula for arriving at cash flow is as follows:
- Gross rental income plus other income less losses incurred = Total Income
- Total income less operating expenses = Net Operating Income before debt service (e.g., mortgage payments)
- Net operating income before debt service less debt service less reserves = Cash flow
Profit and loss statement
This is a financial picture of the revenues and expenses used to determine whether the business has made money or suffered a loss. The statement is created from the monthly cash flow reports and does not include itemized information.
A formula for profit and loss statement looks like this:
Gross receipts, minus expenses, minus total mortgage payments (which includes Principal and Interest) = net profits
Budget comparison statement
The budget comparison statement compares the actual results with the original budget, often giving either percentages or a numerical variance of actual versus projected income and expenses.
