Final modified on February seventh, 2023
By Matthew Kaddatz
How does your property administration firm keep compliant and environment friendly in terms of accounting and reporting?
As a earlier proprietor and operator of a property administration firm, I can attest to the truth that accounting is one among the most advanced and time-consuming workflows. It’s additionally probably the most vital, because it impacts virtually each facet of your enterprise — from proprietor retention to leasing to upkeep. When my enterprise processes weren’t environment friendly and constant, errors occurred extra incessantly, which resulted in lots of late nights. Because the proprietor of a property administration enterprise, you possibly can’t afford to get accounting unsuitable! Between the danger of failing an audit to the danger of dropping prospects due to monetary inaccuracies, there isn’t room to make errors and there’s an actual should be environment friendly.
On this submit, I’m going to element a number of the most urgent accounting challenges I confronted whereas working a property administration enterprise — a lot of which I’m positive you will 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 data, I’m not offering authorized recommendation and it’s best to seek the advice of a professional tax lawyer for any particular questions on your accounting processes or taxes.
Problem #1: Gathering lease
Numerous property managers I speak to battle to gather lease from all of their renters in full and on-time. This can be a frequent concern, however over time it may possibly rapidly influence property NOI, proprietor money stream, and in the end stunt your enterprise’ progress. Among the causes accumulating lease is tough is as a result of many companies are nonetheless solely accepting paper checks or cash orders, which should be collected by hand, after which deposited on the financial institution and manually enter into the system, which takes further time and requires double information entry.
Resolution: Provide on-line lease assortment
Relatively than accumulating paper checks and processing lease by hand, think about transitioning to on-line funds. On-line funds not solely save your crew time and improve the chance that lease can be paid on time and in full, however are additionally extra handy and most popular by renters. Millennials and Gen Zers make up the vast majority of renters right this moment, and are accustomed to utilizing know-how to hold out a lot of their day by day duties, and that features paying their lease and payments. In actual fact, in response to 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 cell system. 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 sooner. For example, JC Register of Register Actual Property makes use of direct ACH deposits to expedite funds to his homeowners. Because of this, 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 test. 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 a whole lot of double information entry, which frequently led to errors and inconsistencies that required a whole lot of time to resolve. These methods don’t power each transaction to be tied to a property, so it took a whole 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 guide Excel double entry. This made reporting a really guide 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 right this moment’s day and age, there’s no purpose customers must be manually doing this. When selecting a main property administration platform, guarantee that it imports financial institution transactions day by day and gives a centralized view of your financial institution exercise alongside your property administration data. Automation and AI may be utilized to make financial institution reconciliations easy. It’s now potential to obtain automated stories together with your financial institution exercise, and deal with transaction-matching in a single simplified step. All of this can assist your crew keep away from having to spend time untangling errors on the finish of every accounting cycle. You may learn in regards to the financial institution reconciliation resolution provided inside AppFolio Property Supervisor right here.
Problem #3: 1099s and year-end shut
One of many duties I used to dread all yr was making ready and sending 1099s. It was at all times a really tedious, advanced, and time-consuming course of. Nonetheless, if I didn’t submit them on-time, I might 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 acquired from homeowners and paid to distributors, which in flip made it potential 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 danger attributable to guide information entry errors. There’s super worth in producing 1099s mechanically and to have accompanying stories, because it saves time, and ensures greenback quantities are correct, clear, and clear to homeowners.
It’s simpler and sooner to course of your 1099s when your entire distributors’ and homeowners’ data is within the system. Make certain that your accounting platform additionally supplies help for the 1099-NEC kind, which is now required to report on vendor earnings.
Problem #4: Proprietor packets
Lastly, making ready proprietor packets was at all times a problem for me and my crew. It was a really time-consuming course of, and once I didn’t have correct information that was straightforward to entry, I labored properly into the night time to keep away from buyer confusion and proprietor dissatisfaction.
Resolution: Undertake reporting instruments
Reporting instruments immediately analyze property information that lives in your property administration platform and compile them into proprietor stories, 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 information, and the flexibility to customise your stories. A digital system additionally makes it simpler and sooner so that you can share stories 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. Nonetheless, when you standardize your processes and put automated, digital instruments to work, it can save you time, improve accuracy, and keep compliant. Benefit from the options I shared above and also you’ll be capable to set your enterprise up for achievement — not just for this tax season, however your complete yr. To be taught extra about how one can optimize your accounting operations. Take a look at this information.
Concerning the Creator
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 corporations. In his present position, he’s liable for making certain AppFolio is frequently constructing progressive instruments that assist property administration companies develop and develop into extra environment friendly.