Brad Marting’s presentation on How to Sharpen Your Financial Analysis Skills was delivered with humor and patience. Brad walked a roomful of mostly right-brain participants through a decidedly right-brain process—in a way that was both clear and interesting!

Brad began with a couple of basic questions that illustrate many of our secret—or not so secret—feelings about financial analysis: Why do we hate to work with numbers? and why are our reports so boring? Underlying these questions are some more fundamental ones: Do we understand the numbers we work with? Are we even looking at the right numbers? Are we telling the correct story?

Brad pointed out that we need to look beyond the numbers in our financial reports to see what story they are telling. “The numbers by themselves mean nothing—it is the interpretation that matters,” he explained. “Financials should inform, educate, and disclose as much as possible in a way that is favorable to yourself.”

Choosing the Right Reports

Part of making financials reflect favorably on you is understanding the different types of reports available to you and knowing what information to include in each. By putting together the right combination of reports, you can showcase your successes, support your requests, and more clearly tell your financial “story.” Brad discussed five categories of reports:

§    Accounting reports. There are two main accounting reports: balance sheets and income statements. The difference between them is that the balance sheet measures a specific point in time, while an income statement measures a period of time. A balance sheet shows you where you stand—in terms of assets, liability, and equity—as of a certain day. An income statement shows what your operating income, operating expenses, and net operating income has been during a specified time frame—a month, a quarter, or a year.

§    Management reports. Brad discussed a number of management reports that can help you communicate the right information. For example, calculating a traffic hurdle rate can be a useful way to show whether your properties are facing an internal or external challenge. If you find that you are not generating enough qualified traffic to meet your traffic hurdle, your problem is an external one (i.e., marketing, advertising, etc.). If you are generating enough traffic to meet your hurdle, however, your problem is an internal one (i.e., leasing capabilities, problems with the property, etc.) Other useful management reports include turnover reports, aged accounts receivable reports, bad debt write-off reports, and occupancy/pricing reports that show the relationship between occupancy and price by apartment type.

Calculating Your Traffic Hurdle Rate

Number of vacant apartments at the beginning of the month       +   Number of scheduled move-outs in next 30 days   =

Net to lease   ¸   Last 60 days’ closing ratio   =   Hurdle rate for monthly qualified traffic

§    Marketing reports. A marketing report need not be lengthy or detailed, but it should include a summary of what, why, when, and how you are marketing. A formal marketing plan is a more detailed, annual projection of how you will market in the coming year.

§    Leasing reports. There are a number of reports you can generate to track sales performance. You can show performance by apartment type or by leasing professional You can also track leasing by time period, showing how much time elapses between move-out to ready to rent; between ready to rented; and between rented to move-in. By breaking the “time vacant” into these categories, you can identify where time is being wasted, and use this information to get the help you need.

§    Other reports. Brad discussed a number of other reports that can be useful ways to communicate certain types of information. Among them were:
–    Distance from office vs. time vacant—Brad noted that this report can sometimes show that the oldest apartments are the ones farthest from the office (thereby supporting the need to get on-property transportation for leasing professionals)
–    Net monetary gain
–    Cost to make the telephone ring—total of all marketing and advertising costs in a given period divided by the number of calls from prospective residents in that same time period.
–    Cost of vacant apartments—loss due to time vacant and turnover expense broken down into the three periods listed above (in the leasing reports section), plus marketing and advertising costs.
–    Turnover cost savings from renewals—this report can show you your break-even point on renewals (that is, how much you could negotiate on rental rates and still come out ahead).

Regardless of the type of report you are generating, color graphs, tables, and pictures can be valuable additions. “You can get a lot of mileage out of a graph,” Brad said. “They can show, very concisely and clearly, what is happening—and they add interest to the report.” His suggestion: Become proficient in graphing software (such as Microsoft Excel) and use graphs and tables liberally.

Getting the Right Spin

Brad emphasized several times that one key to creating a positive report is framing the information in the right way. “Shareholders and owners like good news,” he said. “Give them what they want.” But what do you do if the news simply isn’t all that good? There are a number of possibilities:

§    Under-promise and over-deliver. Prepare in advance for the possibility of bad news by preloading your budget with contingency. That way, negative news won’t come as a shock and good news won’t necessarily be taken for granted.

§    Blame the market. Brad called this the “if you think we’re in trouble, just look around us” approach—and indeed, it can be a valid one. If you have bad news to deliver, showing that your bad news is less bad than your competitors’ bad news may soften the blow. Research other, similar properties through public source information (for REITs) and IREM and NAA income and expense publications. You can also use an indexing technique to measure your performance against unlike properties—simply choose a day to begin, chart your numbers and the numbers of properties you are measuring against, and continue to chart them over a period of time. The resulting graph will show how you are doing in relation to the other properties. If you find, through research or indexing, that your properties are ahead of the game, by all means use that information in your reports.

§    Find good news. Something good must have happened on your properties in the time you are reporting on, so focus on that! “If it’s in your favor, use it,” Brad said—and followed up with a great list of places where you might find good news:
–    Rental rates
–    Operating income changes
–    Operating expenses
–    Capital expenditures
–    Net operating income
–    Cash flow
–    Occupancy
–    Lease expiration management
–    Cancellation and denial rates
–    Delinquent rent payment rates
–    Traffic counts
–    Closing ratios
–    Staffing changes
–    Resident functions
–    Compliments from residents
–    Attendance at community events
–    Non-housing development in the area
–    New competition
–    Properties for sale or sold
–    Capitalization rate
–    Property/investment value

§    Don’t let negativity creep in.  “Stay positive and focused,” said Brad. Don’t include any unnecessary negative comments, or any wording that smacks of hopelessness. If you introduce problems, be sure that you also offer solutions.

And a Word about Budgets….

The discussion of budgets began with two myths: 1) Budgets are critical; and 2) Hitting the budget maximizes performance. Not necessarily, according to Brad. “Budgets are a necessary evil,” he said. “Do not let them override your good judgment and do not permit them to limit your success—that is, don’t stop when you meet your goal.”

That said, he moved on to the matter of variance reports—those dreaded reports that identify the difference between the budget and what actually happened. Tips for writing variance reports include:

§    Explain only the difference.
§    Do not include a lengthy, itemized list—just one or two sentences.
§    Agree upon what is a reportable difference—that is, how “off” do you have to be before you have to explain?
§    Explain the positive differences as well as the negative—if you are ahead because of a fluke (like a timing issue), be sure to explain that. Don’t let it appear that you are ahead if you really aren’t.
§    Point out good news!

Workshop Leaders:

Brad Marting

Mr. Marting is a professional speaker, trainer, and consultant for OptiYield, a consulting company specializing in profit optimization for real estate investments. His formal education includes a Bachelor of Science degree in Business and a Masters of Business Administration degree.  He is a licensed real estate broker and holds designations as a Certified Property Manager, Certified Commercial Investment Member, Certified Apartment Property Supervisor and an Accredited Apartment Association Instructor.  He has more than 30 years of real estate experience and has served as an officer and past chapter president for both IREM® and NAA®.  In 2009, he was the Chairperson for the Income & Expense survey for residential real estate assets for IREM®.  He is an award-winning author for his article in the Journal of Property Management on Yield Management and was co-founder and co-inventor of YieldStar®, a rent optimization system.  He has acquired, managed, sold and consulted on more than three-billion dollars of real estate investments.

Don’t miss Brad’s workshop

Revenue Management – Basics-Day One

Pricing is key to successful marketing, but can be one of the most difficult aspects of the marketing process. This session delivers essential skills and knowledge needed to optimize your pricing while minimizing costly trial and error. You’ll learn the fundamentals of ‘Power Pricing,’ gain an understanding of pricing dynamics and key metrics used to set up a manual pricing model, and walk away with the skills and knowledge you need to set up an individual manual pricing model for your product.

Revenue Management – Advanced-Day Two

This session goes beyond the fundamentals of ‘Power Pricing’ to deliver the knowledge and skills needed to execute and maintain your manual pricing model to increase cash flow and the overall value of your organization. Learn how to use reports and graphs to more effectively communicate with your team and stakeholders and confidently manage your organization’s revenue. (Prerequisite: Revenue Management – Basics)

Our workshops are designed to deliver the skills you need to compete in today’s challenging environment. Choose from Power Pricing: Revenue  Management BASICS or ADVANCED courses, individually priced so you can attend the course-level that you need most, or choose BOTH! To take advantage of discounted individual course pricing:

Power Pricing BASICS ONLY – MARCH 23 – ONLY $175
Pricing is key to successful marketing, but can be one of the most difficult aspects of the process. This session delivers the skills and knowledge you need to optimize pricing while minimizing costly trial and error. Learn the fundamentals of Power Pricing; gain an understanding of pricing dynamics and key metrics; and how to set up an individual manual pricing model for your product!

Power Pricing ADVANCED ONLY – MAR 24 – ONLY $175
Go beyond the fundamentals and learn how to execute and maintain your manual pricing model to increase cash flow and the overall value of your organization; use reports and graphs to more effectively communicate with your team and stakeholders; and confidently manage your organization’s revenue.

BASICS+ADVANCED! (2 DAYS) – MAR 23-24 – ONLY $304!

DON’T MISS IT! Register to attend these workshops .