Making the most of the portfolio and using data to drive real estate performance ratios can get capital off the balance sheet and back into operations.
Real Estate usage has a long-lasting impact
How much real estate you carry has always had an effect of forecasting and budgeting. Working capital and capital outlays are always a concern and their effects are felt for years and years. The one opportunity you have for making a change, when renewals come due, means a lot to cash flow now and earnings for some time to come.
[blockquote]Many companies don't even have all their lease documents in one place, leaving them vulnerable to excess maintenance charges and automatic lease renewals at above-market rates. Farrell says the lease database and auditing services his firm offers have been growing in popularity, with demand up 30% in the past year. The cost is usually less than that of a lease automatically renewing, says Farrell, and leads to an average 10% reduction in lease operating costs.CFO.com[/blockquote]
Changing the way you measure usage
Until now, there hasn’t been enough data to properly manage your second largest expense. It has been possible to budget for real estate, to estimate how much you have, but without data to show the actual usage, this budget data gives you nothing to act on
Once you start collecting actual usage data, you can institute two new measurements that do allow you to manage this expense. Your VP of Real Estate will want to track the percentage of utilization to show the efficiencies of the facilities and systems. The CFO can use that same data to drive a higher level metric with direct impact on the P&L: the amount of revenue generated per square feet.
[blockquote]A Gallup poll commissioned by CoreNet Global, a corporate real estate association, found that 20 percent of large companies expect to have between 25 and 50 percent of their employees working in unassigned spaces by 2010, and by 2020 the majority of large companies are expected to have adopted the practice to some extent. CFO.com[/blockquote]
CFOs and VPs working together to optimize the portfolio
With actual use data, have the opportunity to achieve something great with real impact on shareholder value. Optimizing the real estate portfolio will take money out of bricks and mortar and put it back into operations. That means fewer hard assets and more cash for growth.