What follows are some tips to help you with your property management accounting, so you can avoid problems and take advantage of what is available.
Be meticulous with financial records
The better you keep your records, the easier it is to keep track of what you’re doing and provide strong protection in case you get audited. Plus, you’ll be able to see trends and answer common questions about your real estate investment. This means you may be able to spot potential problems early and make plans to counter their effects. Additionally, keeping good financial records helps with the following;
– Maintenance issues
– Market performance
– Competitiveness of the local market
The more documents you can keep for each transaction, the better off you are. This is where digitization can really help if you have the right backups.
Create trusted accounts
You want the funds allocated to run your business to be used appropriately. So you’ll need to start by creating trust accounts to help you organize and make sure your money is spent the right way. Unfortunately, misuse of trust accounts is the #1 reason property management companies get audited, so you’ll need to be careful.
Create an account for security deposits and an account to collect rent and pay bills for each client. It may not be required, but it will help you keep separate records that will protect you during the audit process.
Separate personal and company funds
Proper property management accounting keeps your personal funds separate from those managed by the business. You might be tempted to funnel one to the other, but pooling the funds is illegal and will get you in trouble. You’ll need to check local, state, and federal laws, but here are some areas you should be aware of.
– Deposit funds to the appropriate account
– Withdraw commissions and fees from the appropriate account
– Set time limits on when funds can be withdrawn
– Do not mix personal funds with funds from your business
By following these simple rules, you can avoid getting into trouble and keep your funds properly separated.
Effective property management accounting means you can build on your success and minimize mistakes. In essence, you can avoid the basic problems that often plague property managers by simply maintaining separate accounts and meticulous records that ensure your protection in the event you are audited.
Plus, by employing the right property management accounting practices, you can spot potential problems along with good opportunities to make your business even more money. It takes a little time, but following the right practices brings rewards that you may not see today, but will enjoy tomorrow.
