2. What is the profitability of the business?
Creating a successful property management company for multi-apartment buildings involves more than just legal registration and organizational aspects. It is crucial to carefully work out the financial side of the business, including cost calculations, income sources, and profitability. Without a deep understanding of the economic fundamentals and a sound approach to budget formation, there is a high risk of encountering losses and, consequently, business closure.
The profitability of companies operating in the field of property management for multi-apartment buildings is initially quite low. The business requires substantial initial investments, and its return on investment can take several years. Initial expenses include rent or purchase of premises, purchase of furniture and equipment, acquisition of software, hiring staff, and possibly additional costs for marketing and client acquisition. These costs form the base from which the company’s future financial stability depends.
The main income for the company is generated through tariffs for management and maintenance services of multi-apartment buildings. However, tariff rates are often low due to market characteristics. Most of the housing stock consists of buildings that are over 10—15 years old, where people with limited financial means live. They are often unwilling to pay high rates for building maintenance and services, which creates limitations for companies in increasing their income.
However, tariffs are regulated at the general meeting of property owners, and the management company has the opportunity to initiate a review of the rates. This may be due to the objective increase in costs, such as inflation, rising material costs, and services. An important factor in this process is providing a transparent justification for raising tariffs to the residents to avoid dissatisfaction and loss of trust.
Property management companies can increase their profitability not only by changing tariffs but also by introducing additional areas of activity. For example, one way to boost income is by offering extra services to residents. This could include installing utility meters, repairing plumbing or electrical equipment, providing private security services, organizing small repairs, or modernizing engineering systems. These services are charged separately and can significantly increase the company’s revenue.
Another effective method is renting out non-residential spaces within the managed building, part of the adjacent land, or advertising spaces. For this, it is necessary to obtain consent from the property owners at a general meeting, emphasizing the importance of building trustful relationships with the residents.
Additionally, the management company can enter into agreements with external contractors who provide specialized services, such as cleaning, water delivery, apartment repairs, or technical maintenance. This not only expands the range of services offered to residents but also helps optimize costs by outsourcing some tasks. This approach reduces the financial burden on the company and improves service quality.
A key indicator of business success is profitability, which is calculated as the ratio of net profit to the company’s revenue over a specific period. Simply put, it’s the share of profit generated by each tenge invested in the business. A high level of profitability indicates well-organized business processes, optimal cost management, and effective customer relations.
To increase profitability, it’s essential to balance income and expenses. This includes not only proper tariff formation but also the implementation of quality control systems, cost reduction, and customer loyalty programs. For example, implementing automated accounting and management systems will help optimize operational processes and reduce manual labor costs. Transparent and clear communication with residents, including regular financial reports, also strengthens trust and, as a result, improves the company’s financial performance.
Although property management for multi-apartment buildings is a business with low initial profitability, it has significant growth potential. As the managed housing stock increases, automation levels rise, and the range of services expands, the company can substantially boost its income. It’s important to understand that this process requires time, a systematic approach, and continuous efforts to improve service quality.
Thus, success in the property management industry depends directly on the company’s ability to combine sound financial planning, effective communication with residents, and the implementation of innovative solutions. Only in this way can one expect long-term business stability and profitability.
Profitability is one of the key indicators necessary for the objective assessment of a company’s financial and operational efficiency. It allows management to analyze how effectively the company’s resources are being used, evaluate the dynamics of business development, and determine whether there has been an increase in efficiency or if negative trends are emerging. This indicator is especially important for comparing the company’s performance over different periods and for analyzing the competitive environment. In the property management business, profitability serves as a marker of the company’s stability and viability.
In practice, in the housing and utilities sector, the profitability of management and service companies typically ranges from 5—10%. Higher profitability (around 10%) is more commonly found in companies that manage newer buildings, particularly those built less than 10 years ago, or new residential complexes. This is because new buildings require fewer maintenance expenses, and the owners in such properties often have higher incomes, making them more willing to pay higher fees.
For a company operating in conditions of low profitability, it is crucial to manage its resources carefully to ensure stability and avoid financial difficulties. For example, with a profitability rate of 5%, the collection rate for services provided must be at least 90—95%. If this rate drops below that, the company will inevitably face accumulating debt, which could lead to bankruptcy. This underscores the importance of effective debt collection, which includes developing a clear strategy for dealing with non-payers and applying control mechanisms.
Low profitability carries several potential risks. If the collection rate declines or accounts receivable increase, it becomes more difficult for the company to meet its obligations. This can lead to delayed salaries, high employee turnover, and a decrease in staff qualifications. The departure of skilled professionals and the arrival of less experienced employees can negatively impact the quality of services, which, in turn, reduces customer trust.
Furthermore, low profitability complicates the execution of long-term investment projects, such as upgrading equipment or developing new areas of activity. In such conditions, companies must focus on optimizing costs, automating processes, and finding additional sources of income.
To increase the profitability of a property management company, a systematic approach is required, covering several key areas:
– Increasing Company Revenue
To boost income, it’s essential to analyze market potential, identify opportunities for expanding the customer base, and explore additional revenue streams. The company can work on increasing economically justified rates by actively initiating discussions at owners’ meetings. Another possibility is attracting external investments, particularly for large infrastructure projects, which can provide additional financial resources for growth.
– Cost Optimization
One effective way to reduce expenses is through equipment modernization and process automation. For example, installing energy-saving systems and using software for accounting and expense planning can reduce costs and enhance transparency in business processes. Implementing employee motivation systems can increase their productivity and work quality, which will reflect in the overall efficiency of the company.
– Expanding Service Offerings
Developing new services can provide an additional source of income. These could include paid services such as the installation of meters, plumbing