The business plan puts the operating budget into a broader context by considering strategic decisions which will impact the budget. The business plan starts with the overall investment objectives and moves to the year’s operating objectives. Typically, the year’s operating objectives are driven by leasing objectives, which in turn drive the marketing plan for the year. The projected results of that marketing effort determine the assumptions applied to the budget. A separate capital expenditure plan considers major capital needs looking forward at least one or two (and up to five) years. The current year’s needs are covered in the budget, and anticipated needs over the following years governs the extent of reserves retained to meet those needs.
The annual budget and business plan is presented to the owner for review and approval. The final approved budget becomes the blueprint for operation of the property for the following year.
The annual operating budget will consist of a detailed breakdown (in a standard chart of accounts) of income and expenses for each month with backup schedules for each line item. Income line item accounts will include base rent, escalation or reimbursement income, and other income (such as percentage rent or parking income). A rent roll and monthly rent schedule by tenant will back up these line items. A table of leasing assumptions will show new leases, tenants expected to vacate, and those expected to renew and on what terms.