Property management accounting can be painful — but it doesn't have to be. Most new landlords are surprised to learn managing rental properties goes far beyond finding new renters and repairing leaky taps.
These business owners must employ sound property management accounting practices to ensure the business runs smoothly and profitably. Failure to pay attention to the books will almost certainly result in failure. Instead, use the following basic but essential property management accounting best practices as a starting point.
It would be simple to throw all of your business funds into one huge account, but this is bad business at best — illegal at worst. Instead, make sure to open trust accounts to protect your business in the event you're audited. Establishing separate accounts will help ensure you don’t commingle clients’ funds with your company’s operating funds.
It is also important to set up a system for withdrawing commission fees on time. In most instances, property managers have a specified time period to withdraw their commission from a trust account. As a small business owner, it's up to you to know and follow all guidelines.
Although most people know Black Friday as the day to cash in on money-saving sales, it's traditionally the day retailers begin to make a profit. Unfortunately, in the property management business, there are no national days to encourage people to give you money.
In contrast, property management income is slow and steady. At best you can earn a markup on maintenance fees, but you can expect the standard management fees and late fees. Slow and steady will win the race - only when you're able to properly plan for business expenses.
You should always review the income statement to ensure your business is turning a profit. In property management, nothing is truer than the statement "you can't control what you don't measure."
When it comes to property management accounting, it's simple: you must ensure more money is coming in than going out. But even if you have a positive cash flow, it doesn't necessarily mean you will be in the black.
In property management accounting, not every cash expenditure can be accounted as an expense. For instance, refunding a tenet their security deposit may spend cash, but it would actually use a liability account.
The majority of small businesses use cash basis accounting, which means the cash flow will typically match your income statement number. When you use the cash basis, you'll usually have a positive cash flow as long as your business is in the black.
Do you know what your property management software, Quickbooks, and your bank accounts have in common? While they are all tools you use to manage your business, they may not communicate with each other.
You can save a lot of time by using a property management accounting software designed to integrate information from different data management tools. With an integrated toolset, you can view your financial projections alongside your banking information and any overdue payments. As an added bonus, an integrated toolset simplifies filing taxes for a sole proprietorship or any other business.
Let's face it - no one really enjoys paying bills. However, you can make the experience more enjoyable by making it easy for tenants to pay their rent on the web. While you can always wait for them to mail the check or drop it off in person, giving them online options facilitates a smoother process.
This property management account tip also saves you and the tenets a lot of time. If clients can simply log into a payment portal and make payments, they don’t have to leave their homes, you don’t have to open mail or pay them a friendly visit, and the software automates the recordkeeping.
Although property management accounting can be overwhelming and frustrating, it doesn't have to be. The team of expert accountants and CPAs at Dennehy & Associates offer decades of experience helping landlords manage properties.
We provide a long list of comprehensive services designed exclusively for your business, including:
Instead of trying to learn property management accounting on the fly, trust the experienced associates at John F. Dennehy Jr. CPA.
Contact us today to schedule a free property management accounting consultation.