Why Accounting Is Critical In The Property Management Business
The property management industry transacts lots of cash. Even if you're running a relatively small operation, there's a good chance you'll have significant property management accounting needs. Property managers need good accounting for the following four reasons.
Realizing Revenues and Expenses
Few industries see money coming and going in chunks as much as property management. Every time you so much as clip a blade of grass, money comes in and goes out almost as quickly as the job is done. You have to trace receipts so you can deduct expenses from your taxes. Likewise, you have to keep tabs on rental payments so you can realize what your income is.
Property accounting is inherently difficult. Your firm will charge fees to clients, and there may also be penalties for tenants. It is hard to keep track of who's behind on rent, for example. You want to avoid making any mistakes because that's a good way to upset tenants. Fortunately, competent accounting will minimize mistakes.
Many property management businesses have more than one client. Diversification is good from a business perspective, but it does make property management accounting tougher. You need to closely monitor cash flows involving each client to ensure that everyone is properly billed and paid. Even if you pool resources and charge flat fees for managing the properties, you'll want to monitor spending and payouts on a per-client basis so you can assess which properties are cash flow positive versus which ones might not be worth renewing.
Most jurisdictions have rules governing the handling of deposits. For example, your city might require you to place tenants' deposits in escrow once they've lived in a place for a certain number of years. An accountant can keep up with the regulations and ensure that you're handling the deposits correctly.
Some businesses have cash flow problems and don't realize it. It is easy to look at the numbers at the end of a week, month, or year and say that everything is profitable. The problem is that cash flows can be uneven. Tenants might be slower to pay at certain times of the year. Also, macroeconomic trends can slow cash flows down as fewer people can afford housing. Inflation also can eat into cash flows as expenses go up, and you might not notice this if you're only checking the property accounting once a year.
An accountant can help you tightly monitor cash flows. If there are short-term issues, you can then pursue a short-term loan from a bank to bridge the gap. For more information on property management, contact a professional near you.