Managing an owner’s assets, revenue, and expenses is a property manager’s primary responsibility, so whether you like it or not, you’re constantly dealing with accounting. So how to become a successful property accounting bookkeeper?
Your company handles a lot of money monthly, from vendor invoices to collecting rent payments. But are you accurate and effective where it counts by using the necessary bookkeeping principles, procedures, and property management accounting software?
A senior product manager, states that “accurate figures and real-time financial data enable good decision-making within your firm and inspire trust in your property owner clients.”
She also states that accurate bookkeeping prepares you for tax season and other financial occasions like quarterly meetings with your HOA boards or monthly owner reports.
According to Brandon Hall, The Real Estate CPA, “there is a lot of liability to incorrect accounting, especially for a property management company.” “You might not be accounting for expenses and revenue per client, or you might be missing tenant payments.”
He claims that sound accounting principles help ensure that your books are balanced and that you correctly account for all the money associated with your properties.
To assist property managers in being profitable, we’ve compiled a list of ten best practices for bookkeeping.
How to Create Good Property Accounting Procedures
The first step to becoming a successful property accounting bookkeeper
#1: Create Individual Bank Accounts
You’ll require a different account for security deposits in addition to a standard company account. This will be your first step to becoming a successful property accounting bookkeeper. Many states demand that security deposits be kept by landlords and property managers in separate escrow accounts so that they are available when tenants vacate.
Hall advises keeping security deposits in a trust if your state permits it. “If you do it right, each property will have a separate P&L. You’ll be aware of your financial situation and your expenses and income per client.
Making sure you’re precise about how much you owe the customers and what your management fees are, is the whole point of trust accounting. If you don’t execute it correctly, you could face a lot of liability and possibly licensure problems.
#2: Create a Chart of Accounts
A chart of accounts lists all assets, equity, expense accounts, income, and liabilities. It aids in categorizing and organizing your financial transactions. Without mastering the chart of accounts you can never become a successful property accounting bookkeeper.
While having these is crucial, you do have the freedom to modify your chart of accounts to suit your company’s demands. You may maintain your chart of accounts as high-level or as detailed as you wish. Everything relies on what is suitable for your business.
You can use something as simple as an Excel spreadsheet to construct a chart of accounts or invest in property management software to make the process easier. For instance, some software tailor elements for property managers that automatically generate a chart of accounts.
#3: Select a Method of Accounting
The two primary accounting techniques are accrual and cash. Cash accounting allows you to track your income and expenses as they are collected and paid. Contrarily, accrual accounting captures revenue and costs as they happen.
Most property managers use cash-basis accounting, but as they incur, be careful not to lose track of income and expenses. Accounting software is helpful in this situation. It helps you monitor every cash coming in and going out.
#4: Select a Bookkeeping Technique
Next, decide whether to use single-entry or double-entry bookkeeping. All incoming and outgoing financial transactions are entered only once under single-entry accounting, which does not imply that each could not have its column. It means everything is entered into your record only once.
Double-entry bookkeeping is more frequent in businesses. Every transaction is entered twice in this method—once as a credit and once as a debit. If you were to pay a bill from your cleaning service, for instance, you would enter the payment as a debit in one account (or less money in the bank) and as a credit in another account (or less money owed to the cleaning service).
#5: Keep Track of Receipts and Invoices
Find a productive approach to organizing all invoices and receipts. It might be a general accounting program like QuickBooks or other property management software which is more suited to the requirements of property managers in accounting for the books of their owners.
Whatever you decide, make it a habit to keep track of all financial statements for your company’s inflow and outflow.
Create a timetable for regular reporting for both you and your owners. Owners have the opportunity to create and download their reports. However, meeting them to review the numbers could be a good idea. A property accounting bookkeeper will always keep proper track of receipts and invoices.
Tips for Maintaining Profitability
Mandatory skillset to become a property accounting bookkeeper
#6: Maintain Up-to-Date Collections
In some cases, such as during the pandemic, when tenants or owners are having difficulty, it becomes sensible to suspend payments. But, it would be best if you did not let your collections fall behind schedule because that cash can accumulate and affect your financial situation.
Note any waived costs and classify those apartments or houses correctly. Additionally, ensure your procedures are consistent and adhere to local and state regulations to avoid putting yourself, your residents, and your owners in a risky scenario.
#7: Prepare for Unexpected Costs
Even if your collections are current, there will inevitably be one expense that you weren’t expecting. Maintaining a rainy-day reserve will save you from scrambling to cover an urgent purchase or even lost revenue from an owner who left.
Look back on your expenses from the previous year, especially the unforeseen ones, and aim to save enough cash for future costs of a similar nature.
#8: Balance Your Accounts Often
You can identify typos, duplicates, missing entries, and bank problems by doing a monthly reconciliation. It is the initial phase of proper bookkeeping. To make sure there isn’t any money missing or overpayments, do your reconciliations at the end of each month.
It’s tempting to put it off because it can take a lot of time, but choosing the appropriate tool to makes it easier and can save you a lot of money.
Many software enables users to begin reconciliations and preserve their work for later. Therefore, with time, you can continue. When you’re finishing up your bank reconciliations at the end of each month, this can save you hours.
#9: Maintain a Positive Cash Flow
Even though your cash flow is positive, you may not be profitable. Not all monetary outlays qualify as expenses in property management bookkeeping. For instance, in property accounting, repayment of the security deposit uses a liability account but shifts the money. You might purchase a large, pricey piece of equipment, a computer, or a vehicle with corporate funds and record it as a fixed asset.
You’ll typically have a positive cash flow with cash basis accounting as long as you maintain your business’ profitability. This number will undoubtedly fluctuate, so it’s essential to keep an eye on it if you run your company’s books on an accrual basis.
#10: Find Ways to Deduct Cash
You can review your accounts to find areas where you might save money if you keep precise, current books. Utilizing tax deductions is one approach to achieve this. Saving is earning and therefore any successful property accounting bookkeeper will focus on this aspect.
For instance, you can write off mileage, bookkeeping services, and education and training expenses. However, a lot has changed during the pandemic and will probably continue to do so to boost the economy. Keep up with any tax regulation changes that may affect what you can and should write off.
Also, remember to integrate your business strategy with your tax approach. Your best resource is a qualified CPA and advisor, but you may also keep up to speed by reading the tax guide for property managers available online.
In addition to keeping you in the black, good accounting keeps your company compliant and lowers the risk of losses. However, knowledge is only one component of the puzzle; you must also ensure that the data you gather is high quality. Spending a few minutes each day verifying any new transactions that have come through is always helpful.
You can ensure that your accounting gives an actual image of your company and doesn’t obstruct your growth strategy by having a firm grasp of the principles, the accompanying technology, and the necessary discipline. If you have any more tip to become a successful property accounting bookkeeper then please let us know in comments.