Despite having prepared budgets for many years, for MIH ensuring an annual budget is accurate remains one of the most difficult and important tasks of our management. As, this will set the tone for the year ahead and beyond (particularly as no managing agent wants to levy balancing charges for unforeseen expenditure in the next year) it is imperative that we at MIH get it right first time.
So how can we ensure that we are creating a Da Vinci’s Mona Lisa as opposed to Picasso’s Guernica?
From the day that our clients sign a Management Agreement with us, we hit the ground running and often even before our tenure has started in earnest, we look at the contracts and services at the property.
Our approach is three-pronged:
Is the contract/work required?
Are the current contractors giving the best service?
and finally, are the costs economical/reasonable?
Often, we have found that contracts have been taken out on properties that have not been reviewed, do not address what is required at the property or are simply no longer valid. It is always an amusing moment in the office when we suddenly receive a bill out of nowhere from a Company who states that they are servicing something that is no longer at the property!
The knowledge that we obtain in advance, helps us to know our properties from the get-go and means that in most cases we are immediately able to find cost savings, usually as a result of finding a cheaper alternative.
Small savings count
However, sometimes it can simply be down to our longevity in the industry which results in us “finding a man or for that matter a woman who can”. Where we do know such a person, we can usually reduce the work required by half.Recently on a new management we were able to cut the costs of the repairs to the auto dialer in the lift by getting the lift line tested and confirmed as working. The only repair therefore was to the hardware, ensuring our Freehold Client only had to pay for the faulty auto dialer – and ultimately the costs, often making for both a happy contractor and a happy client.
These small savings mean that the contributions being made to the service charge are often reduced or can be used against other items that are included in the budget so that further monies are not required.
What happens when a increase count be helped?
Of course, on a blog which looks at preparing a perfect budget we are always going to be positive about what MIH can do so it seems that we should be balanced about this and explain what we do when an increase can’t be helped.
When we first look at a budget, we do the obvious thing and review previous expenditure, where we can reduce this all well and good but what we do find that the budget is not enough to meet the needs of the property it is a challenge even for our seasoned Director.
As would be expected in this circumstance, we look to prepare a budget that is catchall for everything we feel is needed at the property and what can only be described as the best case scenario.
We then temper this to something more realistic and will discuss with our clients what they feel can be sacrificed in order to achieve something that is more palatable. (Although we must admit we try to stop short at decreasing the reserve fund as we believe that this is so crucial to the long-term future maintenance of their property.) If this doesn’t work, we will look to prepare a budget that the client can agree to but make sure that they are aware of its failings and do the same when sending this out to those who are contributing to it but are not necessarily part of the decision making.
Making our clients aware of all the options
In every case, we are keen to ensure that our clients are made aware of all options, whether this be the gold standard or bronze standard and what this will entail be it that savings have been made or where there may be a reduction in service.
Having reread this blog, we are inclined to ask the question of what a perfect budget is. Our Director remembers one of her old employers getting extremely excited when the year end accounts showed a surplus of £20 on the annual budget he had drawn up. This is the very much the ethos that MIH want to eschew and we are all of the opinion that service charges should be fair and reasonable and that you should only be paying for what services you receive. A bit like our personal budgets except that where we would be thrilled to put any surplus into our saving accounts most leases do not permit an automatic transfer of the surplus to the reserve fund.
While we accept that it is always positive to get money back, we are also aware that more often than not it would be better to actually charge correctly in the first place and therefore our answer to a perfect budget or our idea of “Perfecto” is one where we get the budget correct to almost a decimal place or in less mathematical terms “bang on”.