Bookkeeping basics for successful property accounting

Marc Levetin
| 5 min. read
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One of the best parts of my job is that I get to talk to property managers on a regular basis in the name of research. I’m always impressed by how often they put their customers above all else.

Here are a few property management stories that I’d like to share:

  • A few years back, I talked to a property manager who managed about 400 units alongside a thriving real estate business. This property manager told me that he once paid for major repairs with his own money, because the rental owner had been a client for years and it was “either that or foreclosure.”
  • Another realtor with a 50-unit property management company went even further. When the tenant was late with the rent, he’d float the tenant a loan for two reasons: He knew that the owner depended on that rent money to pay the mortgage, and also that the tenant was recently laid off and had an interview for a new job the following week.
  • Just last month, I met another 400-unit property manager of rentals and associations whose #1 point of pride was helping to clean up a new client’s books so they were prepared for the future.

This kind of goodwill and generosity helped these awesome property managers to build their amazing reputations. However, while there are instances where this may be the right decision, I often urge those in the property management business to keep in mind that business is… well… business. It’s important that property managers focus on their own business’ finances first and foremost.

One major way to take care of your own needs first is to pay close attention to property management accounting basics. Here are 5 bookkeeping practices that property managers should follow in order to achieve financial success.

Bookkeeping Basics for Property Accounting

Rule #1: Play by the Right Set of Rules

In managing their client’s money, most property managers are bound by a series of guidelines. Usually, these rules are set forth by the local real estate commission or state agency. These guidelines should form the foundation for your company’s own best practices around property accounting.

Rule #2: Reconcile Your Bank Account

In the past, we’ve talked about how bank reconciliations are a necessary part of property accounting. If you are in a state with an auditing agency, you’ll know that a monthly bank reconciliation is the start of compliance. The same reasoning applies to managing your company’s bank account. Bank reconciliation helps you to find typos, duplicates, missing entries, and bank errors. It’s the first step in accurate bookkeeping.

Rule #3: Keep Your Collections Current

Most property managers spend a ton of time each month trying to get their tenants to pay overdue rent. If your company is owed money, you should do the same.

One of the unique aspects of property management is that property managers pay their clients’ expenses, from repair bills to management fees. This means that in most cases, you can pay yourself as soon as the rent comes in.

If you’re not in the habit of collecting your management fees on a regular basis, set up a calendar reminder. It’ll cascade to a healthy business: A regular schedule will help you to collect your fees; which, in turn, will keep your business in the black.

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Rule #4: Keep It in the Black

Did you know that Black Friday earned its name because it’s traditionally the day that retailers would start to make a profit?

In property management, we don’t have a national phenomena that drives everyone to give you money on a certain day of the year. Property management income tends to be slow and steady: regular management fees, collecting late fees, earning a markup on property maintenance services, and so on.

Slow and steady can win the race, but you need to plan for expenses accordingly. Review a company income statement each month to make sure that your business is earning a profit. You can’t control what you don’t measure.

Rule #5: Stay Cash Flow-Positive

This one is pretty simple: Make sure you’ve got more money coming in the door than going out.

But doesn’t a positive cash flow mean that you’ll automatically be in the black? Nope. In property management bookkeeping, not every cash expenditure is an expense. For example, with property accounting, a security deposit refund spends cash but uses a liability account. With your company books, you might buy a big piece of expensive equipment, a computer, or a vehicle and book it as a fixed asset.

Most small businesses use cash basis accounting, so the cash flow is usually going to match the number on your income statement. With cash basis accounting, as long as you keep your business in the black, you’ll typically have a positive cash flow. If you manage your company’s books on an accrual basis, this number is probably going to vary, and it’s worth watching.

What Other Property Accounting Tips Do You Have?

What else do you do to keep your company’s finances healthy? Let us know in the comments.

Read more on Accounting & Taxes
Marc Levetin

Marc Levetin

Marc Levetin is the co-author of Property Management Accounting.

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