7 Property Management Accounting Best Practices

In addition to property maintenance, one of the most important responsibilities of a property manager is to oversee the income and expenses. Even though it’s a tiring task, you need to have a grasp on your property’s accounts, such as receiving rent and paying for maintenance. Doing so enables you to see if your property is generating profit or not. 

Unfortunately, not everyone has a keen eye for managing accounts. Take note that 82% of businesses fail due to poor accounting management. It’ll result in a negative or poor cash flow. If you don’t want to be part of the 82%, it's vital to know some property management accounting tips.

Fortunately, this article will share seven best practices of property management accounting. By knowing these practices, you can make sure that your property is generating income and that you’re staying on top of your finances.

1. Stay Organized

Rental property accounting requires rigorous organization skills. Being organized won’t just help you create clear metrics, it’ll also allow you to clearly monitor any transactions. Additionally, paying your property taxes or having documents for an audit becomes easier when your paperwork is organized. 

Here are some ways to stay organized:

• Reduce or remove clutter
• Have a productive work environment
• Streamline your workflow
• Schedule your day

2. Have a Separate Business Account

Whether you’re renting a single unit or multiple ones, it’s important to always consider it as a business. One way to do this is to separate your personal account from your business account. Therefore, open a business checking account. 

Once you’ve opened a business account, keep in mind that all income coming from the property must go into the business account. Also, any expenses made, like repair and maintenance costs, must be paid using that account. 

Moreover, since the first tip is to stay organized, consider opening multiple business accounts if you have many properties. Ideally, each property should have its own business account. Doing so will allow you to easily track your finances, keeping you organized. 

3. Utilize the Best Property Management Accounting Software

With the advancement and dependence of technology nowadays, tenants expect landlords like you to offer digital payments. In fact, one factor that attracts potential tenants is the ease of convenience when it comes to payments. Thus, make sure to use the right accounting software. 

Here are the benefits of using the best rental property accounting software, like ExactEstate.

Eliminate or Lessen Accounting Mistakes

Since any mistakes related to accounting can put a hole in your pocket, it’s best to avoid them altogether. Thankfully, by using property accounting software, you can lessen, or even eliminate, the chances of committing any mistakes.

• First, the software will allow you to keep track of the tenant's payment –– when they paid and how much. 
• Second, you’ll have a clear overview of your financial standing, allowing you to cut costs or invest in more property.
• Lastly, some accounting software will allow you to link to other property management apps you’re using, streamlining your workflow.

Reduce Overhead Costs

Although you have to initially pay for the property management software, it can be a worthwhile investment. How? Since the majority of your accounting tasks are automated, you’ll be free to do other important tasks. Automation, additionally, will help reduce your overhead costs due to its features. 

For instance, some accounting software will enable you to check a prospect’s background, so say goodbye to renting to nightmare tenants. It can even offer you the option to upload and sign agreements online. Having all of these tasks in one place will remove the need to invest in other applications.

Improve Customer Experience

An improved customer experience always translates to profit, regardless of the business nature. In fact, when it comes to property management, a statistic shows that 69% of managers say that a service-oriented culture brings positive results to their business. Hence, it’s important to have a good relationship with your tenants. One way of doing this is to have multiple payment options. 

Fortunately, property management software enables you to accept any form of payment, as well as keep track of it. It can even provide the option to set up recurring payments, allowing tenants to never miss paying their rent, which also streamlines your accounts.

4. Choose an Accounting Method

There are two types of accounting methods you can choose: accrual accounting and cash accounting. Regardless of the method you choose, make sure to stay consistent with it. 

Here’s a breakdown of the two. 

Accrual

Accrual accounting involves recording transactions when money is due. This accounting method allows property managers to be on top of who’s late on their rent.

Cash

Cash accounting means making an entry when payment is received, and any expense is made. Take note that this method won’t allow property managers to keep track of late rent.

5. Choose a Bookkeeping Method

After choosing an accounting method, the next step is to choose a bookkeeping method. One of the keys to be successful with your rental properties is to apply the best bookkeeping practices. This is because you’ll have an idea if a property is functioning well or not, allowing you to make the necessary changes. 

Here are two bookkeeping methods you can choose from: 

• Single-entry: This method records any financial transactions, profit or expense, just once.

• Double-entry: This method is often used by most businesses since it’s more transparent. This bookkeeping practice involves recording every transaction twice –– as a debit and as a credit.

6. Properly Generate Financial Statements

By having a bookkeeping method, you can now have clear and proper financial statements. This refers to a report that shows how your properties are performing. Here are the key things that should be in your financial statement:

• Balance sheet: This sheet shows your current liabilities and assets; showing how much money you can move.

• Cash flow statement: This sheet lets you know where your money is going, as well as how much you have left. 

• Income statement: This sheet displays how much money you made in a month or year.

Not only is a financial statement helpful for record tracking but it’ll also enable you to easily file and prepare your taxes.

7. Prepare for Unexpected Expenses

Even if you have good tenants who pay on time, there will always be expenses that you may not see coming, like repairs, renovations, or pest control. Instead of finding ways to come up with cash to pay for the unexpected expense or a last-minute purchase, it's important to have some money allocated for these situations.

To have an idea about how much money to set aside, take a look at your records, which is another reason why bookkeeping is important. Then, try to pinpoint any unexpected expenses you previously made to use as a reference.

Takeaway

By applying the property management accounting best practices above, you can rest assured that your rental property is generating income. Just remember to have a backup for your records, whether it’s a hard copy, on the cloud, or a spreadsheet. This is to ensure that your records are safe against any threats, like theft. 

Most importantly, make sure to use rental property software like ExactEstate. ExactEstate is a cloud-based, modern, and fully-customizable managing software catering to the apartment management industry. With ExactEstate, you’ll have more chances of generating profit as it’ll conveniently enable you to track your financial status. Get in touch today for more information!