Heading up a property management business is no joke. Employees, friends, and family don’t often see the blood, sweat, and tears that you pour into your company. If you’re looking at how to grow your property management business, it’s tough work and is not for the faint of heart.
One of the first places property managers look at if you plan to grow is your approach to accounting. It makes sense, then, that Brandon Hall, Founder and CEO of The Real Estate CPA knows what it takes to succeed. In years of experience helping clients in the industry, he’s noticed that most of the companies he works with follow the same general path to scaling their property management business.
We sat down with Hall to hear more about the patterns he typically sees and to get his advice on how you can grow with the right focus on property management accounting. Here’s what he has to say.
Here are the two blog sections you requested, written in a friendly and approachable tone, with active voice and your specific word restrictions in mind:
What Is Growth-Oriented Property Management Accounting?
Growth-oriented property management accounting goes beyond basic bookkeeping. It gives business owners a clear picture of their financial health while supporting long-term expansion. This approach tracks your usual income and expenses, but also puts those details into context, connecting them to larger business goals.
Rather than viewing accounting as a back-office function, you’ll want to treat your accounting process as a major tool for planning and measuring your growth. Accounting-specific workflows, documentation, and software can help you spot patterns, pain points, and opportunities with the data to back them up. Property management and accounting platforms can even feed you this data in real time. .
Why Is Focusing on Property Management Accounting Important for Scaling Your Business?
As your property management business grows, so do the demands around managing your finances. What once worked for five units may quickly fall apart at fifty. That’s where effective property management accounting makes a real difference.
Solid accounting creates a dependable record of your operations. You get a clearer view of income, expenses, owner payments, and tenant balances, all organized in one place. This makes it easier to spot what’s working and what’s not. It helps you catch financial red flags early and keeps you from relying on guesswork when the stakes are higher.
Focusing on accounting also builds trust with property owners, tenants, and even your own team. When financial information is accurate and easy to access, relationships benefit. You spend less time cleaning up confusion and more time making decisions that push the business forward. As you scale, this trust and stability become major advantages.
Now let’s dive into Hall’s advice.
The 4 Stages of Scaling Your Business with Property Management Accounting
Hall breaks down successful approaches to scaling a business into 4 steps. Here’s what each step entails in his own words:
Stage 1: Bootsrapping
First comes the bootstrapping phase. Small businesses in this stage are often made up of one or two people working tirelessly to make things happen. Many mistakes are made, and many hard lessons are learned. Some companies never make it out of this phase. In part one of this series, I talked about how to avoid some of the common missteps in establishing bank account structures, as an example.
Read more: Property Management Banking Tips and Strategies to Stay Compliant and Efficient
Stage 2: Revenue Growth
The next phase is usually characterized by rapid revenue growth. Prospective customers know who you are and are requesting your services. This state of hyper-growth could last a handful of months or multiple years.
Stage 3: Reaching Maturity
Eventually, the company hits a ceiling and is forced to mature. Such a ceiling can be characterized by:
- Tons of prospects knocking on your door, but you don’t have the capacity to serve them
- Low margins due to previously poor pricing strategies, meaning that you can’t add capacity now
- A lack of systemized processes, causing confusion and mistakes
- Technology solutions that don’t talk to each other, further adding to operational confusion
- Clients complaining about poor quality or a negative customer experience
If you haven’t faced these issues, you haven’t hit your first ceiling yet. I know because my firm and many of our clients ultimately go through this. It’s painful, and your company is forced to mature quickly in order to survive.
Stage 4: Revenue Growth (Second Wave)
Once your company matures, you’ll again experience significant revenue growth. This time, however, customers will be happy, margins will be higher (meaning that you can hire more employees), and you’ll have a business that’s systematized and operates smoothly.
Throughout the process of growing your business, you’ll continually hit ceilings that will test your ability to pivot and adapt. As each ceiling is broken through, the rewards become that much sweeter.
We’ve coached our clients on how to break through such ceilings; and whether you’re a property manager, real estate syndicate, or developer, the advice is relatively similar. I’m going to share some of our advice with you today in the hope that you can put things in motion now to make breaking through your ceilings easier when they inevitably arrive.
3 Tips for Breaking Through Ceilings As You Grow
Hall has coached his clients on how to break through such ceilings; and whether you’re a property manager, real estate syndicate, or developer, the advice is relatively similar. Here’s his advice to help you put things in motion now to make breaking through your ceilings easier when they inevitably arrive.
Tip 1: Experiment with Your Pricing Model
How do you charge for your services? Did you determine your pricing model based on what everyone else is charging?
Pricing is both an art and a science. Don’t be afraid to take risks and test new offerings. For example, if you have an out-of-state landlord, what would they pay for a quarterly video walkthrough of their property?
There are three main ways to price services: value, fixed, and hourly. We have property management clients that incorporate all three pricing models into their overall pricing strategy. Consider the following:
- You’re an expert in your local market. How can you add value to landlords who are searching for real estate? Which trends are you noticing that they might not have picked up on, and how can you charge for your knowledge?
- You have all the local connections to contractors. Is charging a 20% markup an accurate measurement of the value of the network you’ve built out? What if you charged a 50% or 100% markup?
- Local brokers would love to work with your clients. Are you letting them do that for free?
- Is a 10% management fee really a good measure of the value of your services? What if you charged an hourly rate? What if you charged a fixed rate regardless of how occupied the property was?
The key is experimenting to figure out what works for you.
Property managers often push back on the second and fourth points above. On #2, people think that a 20% markup on the contractor’s pricing is “as far as I can go before clients will feel it’s too expensive.” However, nearly all property managers in almost all markets charge that same 20%. On #4, clients tell us that a percentage of gross revenue incentivizes the property manager to keep the property full. That’s understandable—but it also pushes you away from taking on properties that have low occupancy and will take a ton of work to lease up. Your revenue on such a property will be low in the beginning, so you may not take it on at all—and yet, you could probably add significant value to those landlords.
The point is that you not only need to consider different pricing strategies—you also need to test them. Figure out what works for you, and dare to be different. All the while, you need to be laser-focused on margins. Companies that have a hard time breaking through that ceiling of growth usually suffer from low margins.
Tip #2: Systematize Now, Not Later
New property management companies typically use multiple technologies and lack standardized processes and procedures. Eventually, this will come back to bite you.
When we’re coaching property management firms, we like to imagine a scenario where a new employee joins your company, and you don’t have time to train them. The employee is totally on their own. Do you have a knowledge base that they can dig into to figure things out?
At some point, you’ll need all of your processes to be standardized and well-documented. They should be so easy to follow that anyone could do it. This is a painful process, but lends itself to scale quite well, especially for service-based firms where your revenue is largely based on the time that you spend working.
For example, you may be tracking financial data on Google Sheets and running bill-pay through third-party software. You might be calling contractors on your cell phone, delivering custom reports to clients that take forever to create, and writing tasks down on sticky notes. What a mess.
Deciding to deliberately systematize your business allows you to take a hard look at how you run your company and work directly on improving it. It allows you to ask tough questions and visualize the “perfect” way to run your business.
For our clients, that “perfect” business is one that’s fully automated. That means using property management software such as Buildium that offers resident and owner portals and a bill-pay solution, a contractor solution, and an accounting solution all in one place. It means building in triggers and tasks so that your employees know what to do and when, while also allowing you to monitor the completion of such tasks.
As our clients implement better systems for their business, they find that they have more free time. The business will begin to run itself, and the owners can focus almost entirely on growth instead.
You can start systematizing your business right now. Brainstorm a list of the business-related tasks that you’ve worked on over the last 24 hours. Reflect on that list and ask, “What technology can I buy to eliminate this task, and can that technology integrate with my current platform?”
Tip #3: Track the Right Data
Without excellent systems, you likely don’t have a way to track and analyze the data that you need in order to grow your business.
If you aren’t tracking the right data, you’ll have little to base your business decisions on other than instinct—and instinct will only get you so far in the competitive sport of business.
The data that you track will be unique to your business and the way in which you operate it. I encourage you to explore key performance indicators (KPIs) for property management companies. You want to be measuring financial data, such as revenue and margin; operational data, such as turn-around time and quality; and client experience data, such as net promotor score.
One simple way to gain massive insight into your business is to start tracking time. I know, I can hear you groaning: “Listen to this CPA telling me to track my time—yeah, right!”
Believe it or not, I had the same reaction when one of my employees suggested that our firm begin tracking time. We were hitting that first ceiling after experiencing hyper-growth, and we didn’t have much data to base decisions off of. So, we implemented time-tracking—much to my chagrin—and I was blown away with the data we collected as a result.
We found out that employees were spending way too much time researching tax laws when another employee already had the answer. We found that employees had natural abilities to perform certain tasks quickly, where other employees took two to three times as long. We also found clients that we had significantly underpriced.
Time-tracking is easy to implement and will offer you unique insights into how and where you and your employees spend your days. If you’re not careful, however, time-tracking can easily provide you with awful data.
If you start tracking time, you must always resist the urge to use time as a performance management factor. For instance, many CPA firms use ‘utilization’ as a performance metric. You are assigned a utilization rate—say, 93%, which means that you must bill 93% of all working hours during the year, equating to 1860 hours. If you hit your utilization, you get a raise. If you don’t, you don’t.
Using time as a performance factor will encourage employees to flub their time card. “I worked 7.5 hours today, and I have nothing else to do, but I need the extra hours so I’ll add one hour to a client and no one will notice.” This happens all the time.
To avoid this, we continually remind our employees that time will never be a factor in their performance review. We also explain that an 8-hour work day is obsolete and based on industrial-era methodologies. What we care about is getting the work done in a timely fashion and adding value—and we want time accurately tracked so that we can manage capacity and know when it’s time to move people around or bring on new employees.
We coach our clients on the same thing. When they implement time-tracking, it’s tough to get used to. However, the data that you receive—as long as you constantly remind employees to track their time accurately and give them no incentives to flub it—will provide awesome insights into your business’ operations that you can take immediate action on.
Technologies for Scaling Your Property Management Business
As stated, Buildium will give you operational efficiency across multiple spectrums. Here’s a list of other technology Hall recommends checking out as you’re scaling your property management business:
- Toggl® makes time-tracking quite easy, and it’s free. We used this for a while before we built a project management platform that included time tracking in it.
- G Suite® (from Google) provides all the tools necessary to run your business in a flexible manner.
- LiveAgent®: An email platform that allows you to easily manage email across your entire organization. No more emails getting lost or stuck in employee’s inboxes.
- Podio®: A flexible and cheap project management and CRM platform. You can use Buildium purely for the management operations and Podio for your overall business operations and growth.
- Slack®: A free way to communicate with your team. We have started adding clients to Slack and they LOVE it. We also love it because we get immediate responses to our inquiries.
- BombBomb®: A video platform that integrates with Gmail and LiveAgent emails—the coolest thing I’ve seen in a while!
- 10to8®: A better and cheaper alternative to Calendly. Get your scheduling under control and receive better analytics.
- Zoom®: A great way to meet with your virtual clients. This is our main meeting tool and allows us to operate effectively as a virtual CPA firm.
Button Up Your Property Management Accounting Before Planning Your Next Phase
By following Hall’s advice and introducing some of the tools he mentioned into your own processes, you can upgrade your accounting, so that when you do plan for growth, you can hit your goals faster and more consistently.
Be sure to also keep Hall’s four growth stages in mind to know what to expect, make adjustments to your pricing model and set up KPI tracking that reflect your business goals.
If you’re ready to start testing out property management accounting software, you can give Buildium a try with a 14-day free trial or guided demo. You can see the platform’s accounting and reporting features in action and even explore its Marketplace of fully-integrated partners, many of which are focused specifically on growth and accounting.
Frequently Asked Questions
What are the four stages of scaling a business with property management accounting?
Brandon Hall outlines four stages: Bootstrapping, where small teams work hard and learn lessons; Revenue Growth, a period of rapid expansion; Reaching Maturity, where businesses hit ceilings due to capacity, margins, or systems; and a Second Wave of Revenue Growth, where the business operates efficiently with happy customers and higher margins.
How can experimenting with pricing models help a property management business grow?
Varying your pricing model allows you to discover what works best for your services and market. Consider different approaches, such as value-based, fixed, or hourly rates, and test them to find strategies that increase your margins and client satisfaction.
What kind of data should a property management business track to support growth?
Track data unique to your operations, including financial data such as revenue and margin, operational data such as turn-around time, and client experience data such as net promoter score. Tracking time can also offer significant insights into how your team spends its days.
Why should I systematize my property management business now, instead of later?
Systematizing early helps you build a strong foundation for future growth. Without clear processes and integrated technology, your operations become messy as you expand. Establishing systems now allows you to clearly define workflows, automate tasks, and train new employees more easily, freeing up your time to focus on business development.
How can technology help me scale my property management business?
Technology gives you the tools to manage your growing business more efficiently. Property management software can centralize accounting, resident, and owner interactions, while other tools can assist with time-tracking, communication, project management, and scheduling. These solutions automate routine tasks, reduce manual errors, and offer data insights, allowing you to operate more effectively and focus on expansion.
What accounting principles should every property management business follow to scale effectively?
To scale effectively, every property management business should follow key accounting principles: maintain accurate, consistent financial records for transparency, budget and forecast efficiently to manage cash flow, and comply with relevant regulations and tax laws. Implement robust financial reporting systems. Regularly analyze financial performance metrics; this helps identify growth opportunities and optimize resource allocation.
How can integrating property management and accounting software improve operational efficiency?
Integrating property management and accounting software significantly enhances operational efficiency. It simplifies financial transactions, reduces manual data entry, and gives real-time insights into cash flow and expenses. This integration allows automated billing, accurate financial reporting, and better tracking of tenant payments. This leads to more informed decision-making and optimized resource management.
How does accurate financial reporting aid in scaling a property management business?
Accurate financial reporting aids in scaling a property management business by giving clear insights into cash flow, profitability, and financial health. This helps make informed decisions for investments and resource allocation. It also meets regulatory compliance, builds investor confidence, and identifies cost-saving opportunities, thereby facilitating strategic growth and operational efficiency.
What are common financial challenges faced during scaling, and how can they be mitigated?
Common financial challenges property management businesses face during scaling include cash flow shortages, budgeting complexities, and increased accounting workload. You can mitigate these challenges by implementing robust accounting software to simplify processes, maintaining a detailed and flexible budget, and securing a reliable financial cushion to manage cash flow variations. Automated reporting and regular financial analysis also help identify issues early and keep the business’s financial health on track.
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