Finances are one of the most important and difficult aspects of property management. If you are hoping to improve the financial health of your business, here are a few property management accounting basics that will help you to create the thriving business that you desire.
Researching State Laws
When managing property finances, it is extremely important to learn the rules and then abide by them. Whether these laws are primarily on a local or a state level, successful property management accountants spend some time researching the rules and then are careful to implement systems that rigidly follow the law.
Considering: Cash or Accrual Basis Accounting?
One of the most difficult decisions is whether to have a cash or accrual based account system. The basic difference between the two is that cash accounting records transactions at the time that money actually changes hands. Accrual based accounting records transactions at the moment of completion of a service. Most small businesses use cash accounting, but there are pros and cons to each. It is worth researching and considering to find the best system for your individual circumstances. Always be sure to reference local laws when choosing.
Focusing on the Reserve Fund
Thinking ahead is one of the qualities of a successful accountant. Large future projects should always be a consideration while budgeting. Setting up a reserve fund will prevent you from having to raise resident fees unexpectedly for an unexpected repair, and allows you to save up for expensive repairs and projects both expected and unexpected.
Budgeting with a Big Picture View
Successful accounting occurs when you not only look ahead to future expenses but you are also looking behind. Looking at past budgets can give you a good sense of the areas that need to be changed on the budget as well as the areas that have been managed well. Always keep the past three years of budgets on hand to reference as you work on the current year.
Reconciling With Your Bank Account
Bank reconciliation is important because it is a method of checking and double checking your finances. Not only does it protect your business in the event of an audit, it can help you find bank errors, duplications, or missing items. This is one of the best ways to ensure a perfect report. Although it can seem tedious to some, reconciling your bank account each month only takes a couple of hours and can even be set up to be automated.
Treating the Business Like a Businesses
One of the pitfalls that property managers fall into is being too lenient with residents to the detriment or failure of the company. Although there are certainly times to be gracious and merciful, it is helpful to remember that your business is a business and that some things must be sacrificed to keep the business running.
Although this is by no means an exhaustive list, these accounting practices are steps that can lead your business to be healthy, thriving, and successful.