Budgeting and the Beginner’s Mind

by John Wilhoit Jr. on

Steve Jobs had an affinity for Zen.  One of the concepts he deployed in business from this perspective was “the beginners mind”.   In its most basic form “the beginners mind” allows us to believe that in any circumstance there are many possibilities.   Interesting.  Can we apply this to the annual budgeting process for our assets? 

The over-simplified budgeting process: take last year’s budget, compare it with actual, split the differences and add 3% to revenue categories and 2% to expense categories.  Done.  Next!   So much for thoughtfulness, professionalism or being connected to reality.   Budgeting can be a  “value add” proposition, assisted by the beginners mind perspective.

In Any Circumstance there are Many Possibilities

Annual budgeting must take into account the realities of each asset; the physical asset and its market.  A picture perfect asset with 300 newly built units across the street in a market with slow absorption has to factor in the impact of the new competition.  These factors should be reflected in the budget. 

Tony Golsby-Smith wrote a blog for Harvard Business Review entitled “Is Your Budgeting Process Killing Your Strategy”  (http://blogs.hbr.org/cs/2011/01/is_your_budgeting_process_kill.html).  This thought shines an entirely different light on the budgeting process.  While it is important to work through the minutia of asset-specific budgeting,  this process must also take into account effects on the larger organization.

How do we accomplish this?  With the beginners mind; by believing that in any circumstance there are many possibilities. Static number crunching that entails moving last year’s actuals into next years column precludes original thought.  The originality necessary in this process is taking current market dynamics into consideration during the budgeting process. 

This view may require utilizing additional facets of your existing “suites” software, or re-deploying marketing savings into customer premiums to gain retention.  Or, taking savings  from utility usage reductions and deploying these dollars into staff training with measurable results.

Consider the annual budgeting process as more than a perfunctory, number crunching, exercise.  There is more to this than making assumptions and passing them up the food chain.  Thinking of budgeting as a “value add” process  makes the entire endeavor much more exciting, and potentially profitable. 

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Multifamily Insight is dedicated to assisting current and future multifamily property owners, operators and investors in executing specific tasks that allow multifamily assets to operate at their highest level of efficiency. We discuss real world issues in multifamily property management and acquisitions. This blog is intended to be informational only and does not provide legal, financial or accounting advice. Seek professional counsel.  For more information, visit: http://www.MultifamilyInsight.com

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admin March 5, 2012 at 8:11 am

Budgets can be like a puzzle and they take on many shapes & forms.

All of which, can be rather maddening but also self rewarding. Budgets can also be viewed as a form of a chess match between you & reality or/vs the natural progressive numbers & the pitfalls of the economy. There can also be an element of self greed that authors can apply, should there lack of controls & guidelines.

Most budgets take on or feel the pressure to have positive spins. That being said. I’ve reviewed, taken on projects those budgets on surface value plus with market taken into account were rather challenging and dark. Or maybe there was a capital project that needs to be worked into the game plan, but based on how the clips fell. You just could not make you numbers work in the manner that would have the greatest eye appeal to either an owner or investor. Those challenges are a chess match & a game of puzzle that I do enjoy. The presentation of the budget is key & is one of the most important features that takes place in the budget process.

Budget Meetings: There have been a few meetings, that I’ve been apart of and felt that the team(s) did not properly prepare or they failed to present a united front. Which in turn, if you were to strip away the large account codes and look into the GL’s & time lines. There you will find, many holes and then be able to validate your thoughts that the budget were not properly prepared & nor was their a clear path of agreement between the involved parties. In general the budget presentation should be a goal of an ownership mind thought. ie. Does this make sense short term & long term based on the properties/owners needs?

Blair Thompson

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