As a property management company, with each new property you acquire, your portfolio expands; however, so does the back-office workload. Around 60% of property management companies lose money because of a lack of adequate bookkeeping. Because many companies get stuck in this loop, and eventually the “back books” you used to stare at start to stare back. And what stands before you are piles of missed late fees, misclassified repair transactions, and incorrectly tracked expenses.
This is one of the signs you need specialized accountant, one that understands the ins and outs of the expectations from a property management company’s financial records. A qualified accountant will take that pile of financial records and help you turn them into a strategic tool for your expansion rather than an administrative shackle.
A generic accountant unfamiliar with your financial workflows, like trust accounting and owner/tenant ledgers, will, at best, fail to identify significant tax deductions. In the worst case, they could mix funds, cause reconciliation failure, and trigger tax audits, fines, or license suspension.
Choosing a property management accountant requires understanding your current accounting needs to support your financial stability and growth. This ensures you select an accountant aligned with your current needs. Additionally, you need a map of future financial ambitions to determine how the accounting practices will evolve alongside. This gives businesses clarity on what to look for, what questions to ask, and the ability to vet against the accountant’s proficiency.
This blog provides information on what accounting services for property management companies should seek from a specialized accountant and offers guidance on selecting an optimized service.
What is included in a Property Management Accountant’s Services
A property management accountant’s services usually depend on the complexity of their client’s portfolio. Their services can range from maintaining all financial records for accuracy and tax filing and payroll to providing comprehensive, high-level financial strategies. They also serve as advisors to help their clients build wealth. Within this range, the following section provides a detailed overview of the core accounting services for property management companies:
Full-Cycle Bookkeeping and Recording
The full accounting cycle is managed by property management accountants, starting with the daily recording of financial transactions and finishing with month-end closures. The property management accounting function includes documenting all revenue (e.g., rent) and documenting the associated expenses for repairs, maintenance, and utilities. Each financial transaction must be accurately classified in the property’s chart of accounts. It must also be reconciled with the bank to ensure there is a balance between the property’s financial records and the bank balance.
Rent Collection and Tenant Ledgers
Accounting services for property management include collecting rent from tenant properties and maintaining accurate records of tenants’ rents. Most accountants will use computerized systems to minimize errors in rent recordkeeping. Accountants will document each tenant’s payment receipts and charge tenants late fees if required. In addition, accountants maintain cumulative totals of rents owed to property owners and total rent payments made by each tenant. The use of these detailed records protects the accountant’s ability to treat each tenant fairly and provides documentation to property owners if issues arise with the tenant’s rent. In addition, accountants must review each tenant’s lease to ensure that income is recorded in the proper period.
Trust Account Management
Managing trust accounts is a vital and legally sensitive service that involves safeguarding funds belonging to property owners, such as rent payments and security deposits. These funds are kept completely separate from the property management company’s operational funds. The accountant’s role is to ensure strict compliance with state laws, making sure each dollar can be traced to a specific property and client. Additionally, they oversee the disbursement of security deposits, adhering to local regulations when returning money to tenants.
Financial Reporting and Property Analysis
Accounting services for property management that handle property management must generate monthly financial statements for property owners. They will also use this data to report on their property’s financial condition. These reports are usually developed for investors to help them assess how profitable and/or have a good return on investment (ROI) their portfolios are.
Budgeting, Forecasting, and Various Analysis
Financial management professionals do more than just keep track of what has happened in the past. They produce an annual budget and financial forecast that provides a basis for establishing realistic financial goals. They team with the property management team to estimate future revenues and expenses, making certain that the property will meet its obligations and still provide positive cash flow.
Common Area Maintenance (CAM) Reconciliations
For commercial properties, property management accountants perform CAM reconciliations. This involves calculating the actual costs of operating the common areas and comparing them to the estimated payments made by tenants throughout the year. They then prepare statements to invoice tenants for any underpayments or credit them for overpayments.
Owner Distributions
Accountants handle the timely distribution of funds to property owners, often through direct deposit after conducting a thorough review of the property’s cash flow. These distributions are meticulously calculated to ensure they are made from available net cash flow and are properly recorded against the owner’s equity in the property.
Questions Property Management Companies Must Ask Before Opting for a Specialized Accountant
To ensure that the specialized accountant meets all of the criteria for your business, property management firms often find themselves in meetings with potential candidates. In such situations, it’s easy to lose sight of the service’s potential or overlook certain areas of accounting. Property management companies often find themselves pigeonhole into filling gaps in their internal accounting needs.
Before choosing accounting services for property management based solely on their credentials, consider asking some important questions. These will help you select an accountant who works to the best of their abilities for your specific needs.
What Is Your Experience with Cost Segregation and Depreciation Strategies?
An experienced accountant can offer proactive tax strategies, like conducting a cost segregation study for large properties to accelerate depreciation. An experienced accountant also has knowledge of properly classifying capital improvement costs and repair costs. This ensures compliance with current IRS tax laws and maximizes deductions.
Are You Familiar with Trust Accounting and our State-specific Compliance Requirements?
The trust account is an area of high-risk funding or where funds must be very carefully separated and reported in accordance with state law. However, if you make a mistake, you can be subject to civil liability, and you may also have a case against you for negligence. You must verify that the CPA practicing trust accounting has experience in this area of regulation. This helps reduce your risk of civil liability by confirming that the accountant is knowledgeable about regulations, such as maintaining a separate trust account for tenant security deposits.
Can you Provide References from other Property Management Clients?
Receiving feedback from industry colleagues can give you an idea of how trustworthy and reachable the accountant you are considering hiring is. It also helps determine whether they have successfully solved complex accounting problems related to real estate. They also help validate an accountant’s skill set, as well as show they have been able to effectively work with other firms on these types of issues in the past.
How Do You Typically Handle Complex Partnership Structures and Investor Distributions?
If your company manages multiple owners’ properties or works with sophisticated investor groups, you will need an accountant who can assist with specialized tax reporting. This professional can also ensure timely and accurate distributions. This accountant must also be able to prepare K-1s for the investors and manage the different types of entities usually used in real estate (e.g., LLCs, partnerships).
As our Portfolio Expands and Various State-Specific Compliances Apply, how do you handle that?
As your portfolio continues to grow, it is vital that you have an accountant who can grow and manage your multi-state tax filing needs and compliance standards. Be sure to ask them how they stay current with constantly changing regulations. Also, inquire about how they ensure the accuracy of tax returns filed in different jurisdictions.
What property management software do you use? And does it align with ours?
A smooth interface between your operational software and the accounting system is key to ensuring an efficient operation. An accountant who knows your platform will be in a position to start work right away. Conversely, most of these other platforms have a steeper learning curve, which could cause your accountant much more training time and associated costs.
Conclusion
To achieve financial success in the real estate business, it’s important to partner with an experienced professional property management accountant. An experienced property management accountant will efficiently allocate income and expenses and produce accurate financial statements. They will also ensure compliance with tax laws while utilizing budgeting methods that maximize profit.
Utilizing their knowledge helps you comply with regulations, identify potential cost savings, and grow your income streams.
In addition to providing accounting services for property management, accountants can also advise you strategically on how to set up your company for success over the long term through comprehensive financial reporting and forecasting. You’ll be able to assess which properties to acquire, whether or not to renovate existing properties, and how to position yourself within your market because you will have accurate financial data available to you.
By managing your accounts payable and receivable, property management accountants allow you to focus on your tenants and property.
Use the skills of a property management accountant as a key partner in your journey to grow your business in a competitive real estate market. Leverage their knowledge to create a long-term, sustainable, and profitable future for your company.
