New research reveals key challenges for CFOs when calculating true costs of commercial property

LONDON - Nov. 7, 2013 - PRLog -- London, 6^th November 2013, A new research paper is now available to help finance executives become more aware of the broad and often hidden range of costs that comprise the total expenditure of acquiring and managing corporate real estate.

According to Michael Power, Professor of Accounting at The London School of Economics (LSE) who was interviewed as part of the research, CFO attention to commercial property decisions remains patchy.  The report outlines the difficulties of collecting all attributable commercial property costs and proposes how finance executives can limit their exposure to risk and expensive contractual commitments.

The report entitled, “Understanding the true cost of property: What every financial executive needs to know” is written by finance and business journalist Rachel Fielding and sponsored by space and infrastructure specialist Portal. As part of the research, both industry experts and FDs from UK blue chip organisations were asked about their views on accounting for commercial property. The paper also explores how finance executives can avoid ‘the black hole’ of property costs, which in turn can have a positive rather than a detrimental effect on the bottom line.

Professor Power at the LSE commented, “Much depends on the balance sheet and operational materiality of the property, involving physical management and investment and on-going costs as well as planning for capital spends. It gets on to the risk agenda if it is (a) a big number and (b) essential to operations - a single dedicated location is more risky than several dispersed locations.”

Eric Tracey, non-executive director and chairman of the audit committee of FTSE 250 Chloride Group also acknowledges the challenge for finance professionals, “Property has been a headache for CFOs and I would certainly expect it to be on the radar. It’s clearly attractive for companies to know what their costs are but collating all of these costs in one place may be quite difficult.”

John Gotley, Managing Director at space & infrastructure specialist, Portal who sponsored the research warns, “Large companies often have a property department and there has been a tendency for board-level property decisions to become a rubber stamping exercise.” However as the UK government takes steps to address its own property estate as an opportunity to cut costs, new approaches to property acquisition are starting to gain traction. “The whole nature of thinking about that cost area has changed, FDs are beginning to realise how they can more closely align their property portfolio with their changing business needs.” Gotley adds.

According to Gotley, commercial property needs to move up the CFO’s agenda and be more closely scrutinised because incorrect decisions can lead to expensive legacy costs incurred by the likes of inflexible leases and dilapidation that can haunt a company and its balance sheet for many years.

Howard Freeman at Baker Tilly commented on the importance of commercial property decisions both now and in the future, “What’s absolutely essentialis that companies look at their real estate strategy in the context of their business strategy. Commercial property is a big cost and a big commitment – it’s not just about the here and now it’s about asking yourself where you will be in the next five to ten years.”

Key areas covered in the report include:

·         Avoiding the ‘Black Hole’ of property costs

·         Mitigating the risk of property

·         How to determine the true cost of property

·         The effects of changes in the workplace

·         Identifiable costs

·         Hidden costs

·         Current Property models: Lease, Capital Purchase, Managed Office Solutions

To download the full report http://www.portalgroup.uk.com/white-papers