In the world of property management, accounting plays a crucial role in ensuring the financial success of a company. Strong and effective accounting practices are essential for managing the financial health of both your clients and the business as a whole.
In this article, we’ll explore various best practices for mastering property management accounting. That includes topics such as hiring the right accounting team, documenting accounting processes, utilizing fractional CFO and HR services, adopting property management software, measuring KPIs, improving cost management, and preparing for fluctuating real estate markets.
Now, let’s dive in!
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Everest started out with a significant advantage—a partner who happened to be a Certified Public Accountant (CPA). They kept all our records in tip-top shape and made all financial decisions based on data.
But, as we grew, the accounting landscape changed. Not only did we have more properties to manage, we had bought out our partners and lost our trusted bookkeeper. Our financial situation was becoming more and more complex and we realized that, to maintain our growth trajectory, we needed to 10x the team. Fast.
A successful accounting team comes with plenty of experience, some specialized skills, and, if you’re lucky, knowledge in property management accounting. They should have a deep understanding of industry-specific regulations, tax implications, and financial reporting requirements. Hiring experienced professionals with expertise in property management accounting ensures accurate bookkeeping, financial analysis, and compliance with industry standards.
And equally important? They need to be a cultural fit. Property management accounting involves collaboration with various departments, such as operations, leasing, and maintenance. You’ll need at least a few individuals who can communicate effectively, work well within a team, and adapt to the fast-paced nature of the industry.
Don’t forget to assess their problem-solving skills, either. Property management accounting often involves dealing with complex financial issues, such as budgeting, forecasting, and cash flow management. Having a team that can analyze financial data, identify potential problems, and propose effective solutions is crucial for the success of your company.
Finally, don’t forget to up-skill your accounting team. The property management industry is constantly evolving, with new regulations, technologies, and financial practices emerging almost every single day. Encourage your team to stay up-to-date on industry trends and do your best to provide opportunities for training and skill enhancement. Future you will thank you!
Pro tip: It’s really easy to neglect growing your accounting team because it isn’t exactly a revenue-producing department. Don’t fall into this trap! We personally had a barebones accounting team for too long, and the last thing you want is your financials suffering.
Documenting accounting processes is a can’t-miss step in building consistency, efficiency, and accuracy in property management accounting. By documenting the entire accounting workflow, you can create standardized procedures that reduce the risk of errors and promote cross-training among accounting staff.
Pro tip: Documentation isn’t just for accountants! Every department across your organization should have shared, written documentation on workflow. We started out old-school with a bunch of Google Docs, but now use Notion.
One of the key benefits of documentation is the ability to create an entire reference guide for employees. This will make it smooth and easy to onboard new hires, because they’ll have step-by-step instructions on how to perform various accounting tasks. It can also be used as a refresher for existing employees, helping them stay up-to-date with any changes or updates to the accounting procedures.
Property management accounting involves two primary areas of focus: client-facing accounting and internal accounting.
Client-facing accounting includes any financial transactions with (you guessed it) a client. Think: rent collection, security deposit management, and vendor payments. The goals of strong client-facing accounting practices are trust and transparency with property owners and tenants.
Internal accounting, on the other hand, focuses on the business’s financials. This might include budgeting, forecasting, and financial analysis. With strong internal accounting practices, you’ll be able to make informed business decisions, identify areas for improvement, and optimize resource allocation.
Long story short, you don’t want to cut corners in client-facing or internal property management accounting. When you excel in both areas, the company will see strong relationships with clients all while making informed business decisions to optimize your operations. Talk about a win-win-win!
Pro tip: Client-facing accounting and internal accounting are two very different ball games. They require different skill sets, knowledge, and expertise. That’s why we have two distinct branches of accounting. One side handles all client-facing issues while the other owns internal.
As property management companies grow, their accounting needs change. Unfortunately, that usually means they become more complex. But what if you don’t need a full-time CFO or a fully built-out HR department quite yet? It might be time to explore a fractional Chief Financial Officer (CFO) and HR (Human Resources) services.
Fractional CFOs provide strategic financial guidance and oversee financial operations, ensuring that companies make informed decisions based on accurate financial data. They’re usually part-time and contracted — that’s what the ‘fractional’ piece means.
Fractional HR services are similarly part-time. They’ll jump in to provide specialized human resources expertise sans full-time HR department. Some of their duties might include talent acquisition, employee onboarding and training, performance management, and compliance.
Both of these services can help your company streamline these necessary processes while reducing costs associated with full-time, in-house staff.
Hey — it’s the 21st century! Please don’t tell us you’re still relying on pen and paper…
In today’s property management sphere, some kind of property management software is critical for corporate accounting. These software solutions offer a centralized platform for managing financial transactions, generating reports, and tracking key performance indicators (KPIs).
Property management software automates routine accounting tasks, like rent collection, invoice processing, and bank reconciliation. This reduces the risk of human error and saves your accounting staff some time plus a few headaches. These software solutions also provide real-time visibility into financial performance, meaning you can make data-driven decisions, identify trends, and proactively address potential issues 24/7.
Pro tip: We started out on QuickBooks, which would probably work fine for a smaller PMC (up to ~500 doors). Larger-scale organizations might need something more PM-specific, though. We use (and love) AppFolio.
Key Performance Indicators (KPIs) are the metrics used to evaluate the performance of accounting staff within property management companies. By setting and monitoring KPIs, you can easily measure the efficiency, accuracy, and productivity of your accounting team.
Some common KPIs for property management accounting might include:
Make a point to regularly review KPIs and provide any constructive feedback necessary. This means accountability and continuous improvement for your accounting department.
Cost management and operational efficiency are both critical when it comes to the success of any accounting department. By ensuring that resources are allocated properly and workflows are optimized, you could see both cost savings and improved efficiency.
Cost-control measures might include:
Cost management and operation efficiency is going to look very different from company to company. But a deep-dive into your teams and process can almost always help determine where you could cut some fat.
Real estate markets are inherently cyclical. That means a never-ending pattern of growth, stability, and downturn. But that’s the life we all chose! So, property management accounting departments will need to prepare for these inevitable ebbs and flows.
Our first tip here is to know your strengths and weaknesses, and know them well. If maintenance is a thorn in your side at the best of times, it’s going to be even worse during a downturn. Know your weaknesses, confront them head-on, and shore them up.
Another great practice is folding other credible people in the organization into the conversation. If you have them, any outside advisors can also take a seat at the table. These people can help you clarify what is working during growth, as well as identifying room for improvement when you’re struggling. Don’t be afraid to lean on others, no matter what the market’s doing.
Mastering property management accounting is no easy feat, but it sure is important.
You’ll need a comprehensive approach that might include hiring the right team, documenting processes, utilizing fractional CFO and HR services, adopting property management software, measuring KPIs, improving cost management, and preparing for fluctuating real estate markets.
It’s a tall order. But by implementing these best practices, you can enhance your financial operations, gain a competitive edge, and achieve long-term success in an ever-evolving industry.
We know what it’s like to grow a property management business from 30 doors to more than 16,000. The journey was anything but easy, and we learned tons of lessons along the way. Our desire to share that knowledge with you motivated us to start the Evernest Property Management Show podcast, a weekly newsletter, and our monthly webinar series for property managers.
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