How CFOs Cut Costs with Smart Real Estate

When you’re a chief financial officer (CFO), you want to limit expenses so you can maintain a stable cash flow. But when you’re managing real estate to operate your business or earn extra income, you’ll be paying for leases and maintenance. And those expenses can weigh heavily on your balance sheet. 

Take the time to strategise ways to keep your cash flow in good shape and lower your costs. Read on as we map out five key steps that can help you improve your approach to real estate management as a CFO.

1. Compare Buying and Leasing

If you’re currently leasing a warehouse space for shipping, would it make more sense to buy it? As a CFO, it’s important to weigh the pros and cons of buying versus leasing. Inevitably, one option will make more sense for your business needs.

If you’re aiming to grow rapidly or potentially shift locations, leasing is the better choice. You may want to expand or find a permanent place in a different part of town. 

Buying, however, offers some distinct advantages. You can start building equity and gain tax advantages. You’ll also have more control over how you modify the space.

Compare costs for each option, and look into financing possibilities. Consider lease terms and maintenance responsibilities as a tenant. And don’t forget to look at your revenue projections in your business plan. 

2. Consider Property Depreciation Scenarios

As your property ages, you’ll be able to deduct some of the costs for maintenance to help your bottom line. But you don’t want to invest in property before fully understanding how depreciation impacts your situation. 

Make sure to look at what a likely depreciation timeline looks like. In other words, buildings don’t depreciate overnight, so you’ll want to know how to manage costs and deductions. The depreciation timeline can affect your taxable income, as well as your cash flow. 

3. Look into Cost Segregation 

In real estate, cost segregation can be a way to speed up depreciation deductions and help your tax situation. As a result, you can see better cash flow, and you won’t need to pay state or federal taxes right away. How does it work?

Cost segregation means you’re separating parts of your building into different depreciation schedules. Your electrical systems and floors, for instance, may be part of a separate category than office furniture or appliances. 

As a result, you’ll gain quicker depreciation deductions, which can negate a lot of your taxable income so you can focus on growing your business. Check with your finance team to see if this process is allowable. When you’re dealing with newly built properties or ones that have undergone big renovations, cost depreciation can be a big help. 

4. Be Consistent with Repair Classifications

Your internal financial teams should apply the same rules to all maintenance needs and improvements. Keep in mind that a building improvement will help the building’s value and potentially keep it usable longer. By contrast, maintenance is meant to keep the status quo within a building.

As a result, accounting teams must be mindful of classifications in reports. Understanding rental property tax deduction policies is essential, too, to differentiate among allowable expenses and repairs.

Make sure your financial team determines what routine maintenance looks like versus capital improvements. Set clear thresholds for approvals of big-ticket repairs or changes. When you’re consistent from one property to the next, you’ll stay compliant and improve tax reporting.  

5. Maintain Clear Documentation 

When in doubt, keep everything standardised. Especially as a CFO managing multiple real estate properties, you want consistent and clear documentation. 

Use the same lease agreement from one property to the next. Likewise, stay consistent with vendor forms, maintenance records, and documents related to capital projects. Always indicate the original budget for a project, adjustments, and the final totals so you can keep your budget on track. 

Be Smart About Real Estate Management

Managing real estate well as a CFO means looking at cost segregation, understanding the impact of depreciation, and clarifying repair categorisations. Keep clear records of everything. And look for opportunities to minimise your tax burdens.

When you’re organised and smart with your strategy, you can improve your cash flow and pursue opportunities to grow.