Final modified on February seventh, 2023
By Matthew Kaddatz
How does your property administration firm keep compliant and environment friendly in relation to accounting and reporting?
As a earlier proprietor and operator of a property administration firm, I can attest to the truth that accounting is considered one of the most advanced and time-consuming workflows. It’s additionally essentially the most crucial, because it impacts virtually each side of your enterprise — from proprietor retention to leasing to upkeep. When my enterprise processes weren’t environment friendly and constant, errors occurred extra continuously, which resulted in lots of late nights. Because the proprietor of a property administration enterprise, you may’t afford to get accounting incorrect! Between the chance of failing an audit to the chance of dropping clients due to monetary inaccuracies, there isn’t room to make errors and there’s an actual have to be environment friendly.
On this publish, I’m going to element a few of the most urgent accounting challenges I confronted whereas working a property administration enterprise — lots of which I’m positive you could have additionally encountered — and share with you how one can overcome them by pivoting your technique and incorporating automated, digital instruments.
Whereas this text accommodates useful info, I’m not offering authorized recommendation and it is best to seek the advice of a professional tax lawyer for any particular questions on your accounting processes or taxes.
Problem #1: Amassing lease
A variety of property managers I speak to wrestle to gather lease from all of their renters in full and on-time. It is a widespread problem, however over time it will probably rapidly impression property NOI, proprietor money move, and finally stunt your enterprise’ development. A number of the causes accumulating lease is tough is as a result of many companies are nonetheless solely accepting paper checks or cash orders, which have to be collected by hand, after which deposited on the financial institution and manually enter into the system, which takes further time and requires double knowledge entry.
Resolution: Supply on-line lease assortment
Relatively than accumulating paper checks and processing lease by hand, take into account transitioning to on-line funds. On-line funds not solely save your crew time and enhance the probability that lease will likely be paid on time and in full, however are additionally extra handy and most well-liked by renters. Millennials and Gen Zers make up the vast majority of renters immediately, and are accustomed to utilizing know-how to hold out lots of their each day duties, and that features paying their lease and payments. In reality, in line with the 2020 NMHC/Kingsley House Resident Preferences Report, 61% of residents say it’s vital to have the ability to pay lease/dues with a cellular gadget. The 2022 AppFolio Property Supervisor Nationwide Renter Motivations Report discovered that 28% of renters view entry to know-how to handle their rental as extra vital now than pre-pandemic.
On-line funds are additionally higher in your homeowners, as a result of they get cash into their accounts quicker. For example, JC Register of Register Actual Property makes use of direct ACH deposits to expedite funds to his homeowners. In consequence, they’re in a position to switch their cash inside 12-24 hours. JC provides:
“I inform homeowners that if they arrive on board, they don’t have to attend for a verify. The cash is of their account inside 12-24 hours. They actually like that.”
Problem #2: Reconciling books
Again once I was working my enterprise, we used restricted methods like QuickBooks and Excel spreadsheets to reconcile accounts. This required us to do quite a lot of double knowledge entry, which regularly led to errors and inconsistencies that required quite a lot of time to resolve. These methods don’t pressure each transaction to be tied to a property, so it took quite a lot of effort to make sure we had correct property-based P&Ls. Moreover, they aren’t arrange for belief accounting, so there was a necessity for handbook Excel double entry. This made reporting a really handbook problem.
Resolution: Computerized reconciliation options in your main property administration platform
Your main property administration software program ought to actually be recording each financial institution transaction that takes place. In immediately’s day and age, there’s no motive customers needs to be manually doing this. When selecting a main property administration platform, guarantee that it imports financial institution transactions each day and gives a centralized view of your financial institution exercise alongside your property administration data. Automation and AI could be utilized to make financial institution reconciliations easy. It’s now doable to obtain automated reviews together with your financial institution exercise, and deal with transaction-matching in a single simplified step. All of this will help your crew keep away from having to spend time untangling errors on the finish of every accounting cycle. You possibly can learn in regards to the financial institution reconciliation answer provided inside AppFolio Property Supervisor right here.
Problem #3: 1099s and year-end shut
One of many duties I used to dread all 12 months was getting ready and sending 1099s. It was all the time a really tedious, advanced, and time-consuming course of. Nevertheless, if I didn’t submit them on-time, I may have confronted heavy penalties from the IRS — as a lot as $30-$100 per late 1099 kind — and opened my enterprise as much as an audit. Closing our books was one other cumbersome workflow, but it was completely essential to calculate how a lot cash I obtained from homeowners and paid to distributors, which in flip made it doable to know how my enterprise was performing.
Resolution: Leverage automation
Automation makes submitting 1099s and shutting books a lot simpler, and in addition removes the chance attributable to handbook knowledge entry errors. There’s great worth in producing 1099s routinely and to have accompanying reviews, because it saves time, and ensures greenback quantities are correct, clear, and clear to homeowners.
It’s simpler and quicker to course of your 1099s when your whole distributors’ and homeowners’ info is within the system. Make certain that your accounting platform additionally supplies assist for the 1099-NEC kind, which is now required to report on vendor earnings.
Problem #4: Proprietor packets
Lastly, getting ready proprietor packets was all the time a problem for me and my crew. It was a really time-consuming course of, and once I didn’t have correct knowledge that was straightforward to entry, I labored properly into the evening to keep away from buyer confusion and proprietor dissatisfaction.
Resolution: Undertake reporting instruments
Reporting instruments immediately analyze property knowledge that lives in your property administration platform and compile them into proprietor reviews, saving time and enabling you to get a clearer image of your funds in minutes. Take into account switching to a platform that has these instruments, together with built-in analytics that may spot errors or inconsistencies in your knowledge, and the power to customise your reviews. A digital system additionally makes it simpler and quicker so that you can share reviews and proprietor packets immediately, all on-line — no extra paper, envelopes, and stamps.
As you and I each know, accounting positively comes with its personal set of challenges. Nevertheless, in case you standardize your processes and put automated, digital instruments to work, it can save you time, enhance accuracy, and keep compliant. Take advantage of the options I shared above and also you’ll have the ability to set your enterprise up for achievement — not just for this tax season, however the complete 12 months. To study extra about how one can optimize your accounting operations. Try this information.
Concerning the Writer
Matthew Kaddatz is the Sr. Director of Product at AppFolio Property Supervisor. Matthew has spent the previous 15 years working within the property administration trade with experiences that embody founding and working a property administration firm, in addition to constructing know-how for property administration firms. In his present function, he’s accountable for making certain AppFolio is frequently constructing progressive instruments that assist property administration companies develop and change into extra environment friendly.