Property management refers to the daily supervision of properties by a third party. This third party is a property management firm or a property manager.
Property management firms must maintain accurate and up-to-date financial records to track rental income, expenses, and profits. However, handling bookkeeping tasks can be time-consuming and challenging for property managers.
In this comprehensive guide to Bookkeeping for Property Management, we will explore best practices and tools for managing financial activities effectively. We will also discuss how hiring a virtual bookkeeping assistant can be the right choice for property management firms to streamline their accounting tasks, save time, and ensure accurate financial reporting.
Significance of Bookkeeping for Property Management
Property management bookkeeping is important for property managers. They need it to keep up with a number of accounts and documents. This includes assets, expenses, revenue, equity, and liabilities.
A lack of proper bookkeeping for property management is an issue. It can cause a manager to fall back on their accounting tasks. This may cause a loss of money or even a legal mistake.
Some important tasks bookkeeping for property management can do are:
Encourage Tenants to Pay Online
Having the facility to pay online is beneficial for rent collection. But some older tenants prefer to pay in person. This may be due to a lack of knowledge of online payment systems.
Virtual bookkeepers can encourage tenants to pay online. They can make them familiar with these systems and simplify the process.
Create Automatic Tracking and Reminders
Bookkeepers handling property management accounts can help you track tenant payments. They can manage systems to track the payment times and the amount paid automatically.
Bookkeepers can remind the tenants of late payments and generate invoices for them. They can also handle tenant chargebacks.
Simplify Your Payment Processes
Bookkeepers managing accounting for property management companies can simplify their payment processes. They can help property managers schedule accounts payable and enter utility bills.
They can manage systems to complete your bank reconciliation. They can do all financial calculations.
Merge Your Tools
In a fast-paced business world, time is money. Using the wrong tools or multiple tools with the same functions causes time loss.
Experienced property management accountants are familiar with different accounting tools. They will be able to help property managers keep only the necessary ones.
Bookkeepers can create monthly, quarterly, or yearly accounting reports. These reports can help property managers understand the financial condition of their property.
Detailed reports can help property managers to make wise financial decisions.
Bookkeeping for Property Management: Best Practices
A powerful cloud accounting system like Freshbooks or Quickbooks can help you manage your real estate investments efficiently and easily. These systems automate bookkeeping and accounting tasks. This removes the chances of errors. You can also eliminate the risk of defaulted payments.
Accounting software for real estate has many user-friendly functions. This includes financial reporting, online payments, and payroll management. This makes the work of bookkeepers easier.
Having a system for accounting real estate is important. But it’s essential to know the most critical practices of bookkeeping for property management like:
Separate Business Accounts
Everyone has personal bank accounts. A property manager should have separate business and personal accounts. This will give your company credibility and boost your image.
It will protect your personal assets from potential legal action in case of a business failure. Having different accounts makes accounting for rental properties simpler.
Bookkeeping is similar to usual accounting processes. It focuses on recording the financial transactions of your company.
There are two major bookkeeping methods.
- Single entry: This bookkeeping method is good for companies with minimal transaction activity. In this approach, a bookkeeper records a transaction only once. You can list both income and expenditure in one row.
- Double entry: In this approach, a bookkeeper records every transaction two times as credits and debits. Every entry into a particular account requires an opposing entry in another account. This entry is also similar to the first one.
Accounting is important to keep track of the flow of money in your property management business.
There are two methods of accounting for real estate.
- Cash basis: This is used to note down earnings on your income statement. It is done when your firm receives money. Also, the bookkeeper records an expense only after making a specific payment.
- Accrual: In this approach, you record the income and expenditure as they happen. It makes no difference whether you are awaiting a bank transfer or a payment from a tenant. It is added to the accounting book.
Chart of Accounts
Every time a transaction happens in a property management firm, it moves to a particular account. You may be confused about which account to use if you have multiple accounts. A chart of accounts can be helpful in this case.
The chart contains all the important financial information about your firm. It includes lists like Income Statement Accounts and Balance Sheet Accounts.
Automate Bookkeeping With Bookkeeping Software
Accounting for real estate comes with several issues. It takes effort and time to keep track of real estate financials. This includes managing rental properties and rent payments. You also need to reconcile bank accounts.
Bookkeepers can automate these processes using bookkeeping software. These solutions can help you read important financial statements. You can track your assets and create reports.
Property management firms have to do a bank reconciliation every month. This will keep their real estate accounting solutions in order. It is a preventive and time-consuming measure.
Bookkeepers can use bank reconciliation to find errors, missing entries, and typos.
Invoices and Receipts
Accounting for rental properties involves keeping track of receipts and invoices. An invoice shows a payment request. A receipt confirms the transaction.
A business needs a healthy cash flow to survive. This can be challenging without proper management of receipts and invoices. Keeping track of receipts and invoices is good for tax purposes.
Maintaining accurate records of deductible expenses can save money. This is possible with bookkeeping.
Some deductions are available for property management companies. You can write off expenses related to certain things. This includes accounting and bookkeeping services, vehicle mileage, repairs, and staff training.
You are also eligible to claim a tax deduction if you pay wages to on-site employees.