Final modified on December eighth, 2022
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 considered one of the most advanced and time-consuming workflows. It’s additionally essentially the most essential, because it impacts virtually each side of your corporation — 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’ll be able to’t afford to get accounting incorrect! Between the chance of failing an audit to the chance of shedding clients due to monetary inaccuracies, there isn’t room to make errors and there’s an actual must be environment friendly.
On this publish, 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 certain you might have additionally encountered — and share with you how one can overcome them by pivoting your technique and incorporating automated, digital instruments.
Whereas this text comprises useful data, I’m not offering authorized recommendation and it is best to seek the advice of a professional tax legal professional for any particular questions on your accounting processes or taxes.
Problem #1: Amassing lease
Quite a lot of property managers I speak to wrestle to gather lease from all of their renters in full and on-time. This can be a widespread concern, however over time it might shortly impression property NOI, proprietor money stream, and finally stunt your corporation’ development. A number of the causes amassing lease is troublesome is as a result of many companies are nonetheless solely accepting paper checks or cash orders, which must be collected by hand, after which deposited on the financial institution and manually enter into the system, which takes additional time and requires double information entry.
Answer: Supply on-line lease assortment
Quite than amassing paper checks and processing lease by hand, contemplate transitioning to on-line funds. On-line funds not solely save your staff time and improve the probability that lease might 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 right now, and are accustomed to utilizing know-how to hold out a lot of their each day duties, and that features paying their lease and payments. In truth, in accordance with the 2020 NMHC/Kingsley Condominium Resident Preferences Report, 61% of residents say it’s vital to have the ability to pay lease/dues with a cell machine. 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 to your homeowners, as a result of they get cash into their accounts sooner. As an example, JC Register of Register Actual Property makes use of direct ACH deposits to expedite funds to his homeowners. Consequently, they’re capable of 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 operating my enterprise, we used restricted programs 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 programs don’t pressure 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.
Answer: Computerized reconciliation options in your major property administration platform
Your major property administration software program ought to actually be recording each financial institution transaction that takes place. In right now’s day and age, there’s no motive customers needs to be manually doing this. When selecting a major property administration platform, make it possible for it imports financial institution transactions each day and gives a centralized view of your financial institution exercise alongside your property administration information. Automation and AI will be utilized to make financial institution reconciliations easy. It’s now potential to obtain automated experiences together with your financial institution exercise, and deal with transaction-matching in a single simplified step. All of this might help your staff keep away from having to spend time untangling errors on the finish of every accounting cycle. You may learn concerning 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 yr was getting 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 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 acquired from homeowners and paid to distributors, which in flip made it potential to know how my enterprise was performing.
Answer: Leverage automation
Automation makes submitting 1099s and shutting books a lot simpler, and likewise removes the chance attributable to guide information entry errors. There’s super worth in producing 1099s routinely and to have accompanying experiences, 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. Ensure that your accounting platform additionally offers 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 at all times a problem for me and my staff. It was a really time-consuming course of, and once I didn’t have correct information that was straightforward to entry, I labored effectively into the night time to keep away from buyer confusion and proprietor dissatisfaction.
Answer: Undertake reporting instruments
Reporting instruments immediately analyze property information that lives in your property administration platform and compile them into proprietor experiences, 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 experiences. A digital system additionally makes it simpler and sooner so that you can share experiences 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 corporation up for achievement — not just for this tax season, however the complete yr.
In regards to 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 corporations. In his present function, he’s accountable for guaranteeing AppFolio is regularly constructing modern instruments that assist property administration companies develop and develop into extra environment friendly.