Biggest Challenges in Accounting for Property Management Companies
December 13, 2022
OHI
As a provider of property management services, you have a lot of challenges to deal with. Your primary responsibilities include managing leads, listing properties, document management, planned preventive maintenance, and billing and payment collection.
While these are your core business responsibilities, there is one additional responsibility you need to think about: property accounting for your business, failing which you might have to pay a heavy penalty or, in extreme cases, put operations on hold.
This article addresses the risk in property management companies and provides solutions for your accounting challenges. The first section deals with the components of property management.
What are the Components of Property Management?
Here are the key components of property management:
Strategic Property Marketing
As a property management company, it’s important you know your target audience and design a marketing strategy accordingly. Keep the following things in mind:
Use the best social media platforms to promote your property
Prepare an advertising budget
Take high-quality photographs
Keep the property price competitive
Finding Quality Tenants
Tenants are your revenue source, and the following points should be considered when selecting them:
Comprehensive tenancy agreement
Detailed screening process
Managing prospective tenant appointments
Regular Repairs and Maintenance
Wear and tear are a part of having a property, and you need to know the answer to the following:
Who will take care of regular repairs?
Is there access to a reliable pool of experienced plumbers, landscapers, and electricians?
Do you have provisions for handling emergencies?
Legal Compliance
Legal problems arise when you deal with tenants. To mitigate risks, you need to have the following:
Penalty policy for a contract breach
Ensure that your business complies with all regulatory requirements
Be adequately prepared for any legal problems
Financial Management
To ensure your rentals or revenues have a steady flow, you need to consider the following:
An efficient rent collection system
Keeping arrears to the minimum
Payment of bills like maintenance, insurance, and other utilities on time
Landlord insurance
What is the Most Challenging Part of Property Management Accounting?
Here are some of the top property management challengesin terms of accounting:
Classification of Costs
All financial transactions need to be recorded under the proper heads as per the accounting regulations.
Selection of Accounting Software
The right accounting software needs to integrate seamlessly with your existing software.
Segregation of Bank Accounts
Errors also occur if you don’t have separate business and personal expense accounts.
Managing Security Deposits
With a regular flow of tenants, returning security deposits on time needs to be monitored. Not returning a deposit on time could lead to legal problems.
Homeowners Association Payments
You need to pay your homeowners association within the monthly due date, or else you might get fined and face legal action.
Paper Records
Keeping track of paper documents is risky since you could lose vital information to your competitors. Data security is compromised.
What are the Examples of Risks in Property Management Accounting?
Keeping paper-based records leads to complications since you end up getting duplicate bills from vendors.
Confusion With Deposits
Without separate accounts for business and personal transactions, you could end up depositing cheques into the wrong bank account.
Higher Overheads
When your business volumes go up, you might need to hire more employees for your in-house accountants.
What are the Best Practices in Property Management Accounting?
To make sure you avoid any risks, follow these property management accounting practices:
Segregate Accounts
Keep separate accounts for receiving rent and making payments for operating expenses.
Recording Transactions Properly
All transactions should be recorded under the right categories for accurate financial reporting.
Uniformity in Accounting Method
Choose from either cash or accrual methods of accounting and stick to them. Both business receipts and payments will be made on time.
Monitoring Deductible Expenses
You can claim certain expenses against your total tax liability and reduce them. Make sure you claim them.
Centralized Accounting System
With different departments in business, a centralized accounting system integrates all departments and makes MIS statements more accurate.
Conclusion
Your property management business needs both higher revenues and proper accounting systems for greater success.
Focus on your existing clients, scale your business, and outsource your accounting challenges to property accountants. Your business efficiency goes up with higher profits and lower taxes!
About Us
OHI is a sixteen-year-old real estate services company working with 75+ commercial and residential real estate developers, funds and property management companies across USA. Our deep expertise in real estate accounting, financial analysis, lease administration and asset management has helped clients cut associated costs by 40-50%. We now provide these services to a portfolio of 100000 units across clients.
Low Cost Property Accounting Services for Real Estate Companies: AP | AR | Reconciliations | Month End Closing | Financials | Year End Accounting | Reporting – VIEW MORE
