Certain fundamental concepts in corporate finance seem to elude managers, even those with theoretically appropriate training. Even executives at large companies sometimes appear to have forgotten basic analogies such as the bathtub filling and emptying analogy taught in school.
It is perfectly understandable that no manager can master all the accounting or economic subtleties of a group. But it is more worrying to see that basic concepts such as income, value, investment, depreciation and expenses pose problems for many people. And this is sometimes to an alarming extent.
This is not intended to be an accounting lesson, but rather to express a certain unease, even astonishment, at the real or feigned ignorance of some managers regarding financial realities that are nevertheless obvious in the fields of facility management (FM) and commercial real estate.
Here are some basic facts that are too often overlooked:
• An office building financed directly by a company ties up significant capital. The choice of whether to include it on the balance sheet, to go through an investment fund or a third party is not a neutral one: it is a strategic decision.
• The depreciation period for a property investment is a financial lever. Beyond tax constraints, it helps avoid budgetary shocks and optimise management in the medium and long term. • Merging several buildings does not automatically lead to lower FM costs. Quite the contrary: depending on the level of quality, the technologies integrated or the complexity of the new complex, costs can increase significantly.
• Consistency between initial investments and operating costs is established at the design stage. Waiting five or ten years to organise this link often means having to make up for costly mistakes. • The obsolescence of facilities must be anticipated from the outset. This makes it possible to plan their renewal and integrate the associated FM costs into a long-term strategy.
• Sharing workstations optimises space and costs, provided that this principle is incorporated into the building design. This is a ‘project within a project’, which is complex but can yield significant gains.
• Entrusting non-strategic activities to internal resources is not always effective. A judicious combination of internal teams and external service providers makes it possible to reconcile performance and budgetary control.
• As a guide, annual FM costs represent around 10% of the construction cost of a commercial building. After ten years, these costs are therefore often equivalent to the price of a second building.
These are not recommendations or advice, but simply observations from the field, which could be described as basic. However, they are regularly ignored by professionals working in these sectors. And this is not without consequences: in a company with 500 to 1,000 employees, the amounts involved can easily reach several million of Swiss Francs.
The solution? Encourage collaboration between technical, financial, operational and real estate experts from the very beginning of the real estate project. A cross-functional approach allows technical choices to be aligned with the company’s overall economic challenges. Why not take advantage of it?
Enjoy reading, and see you soon.