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Introduction
Today the real estate field is rising, therefore property management accounting has become one of the essential parts of businesses. You have to keep all accounts well maintained from your assets to liability.
Accounting for property management includes the financial tasks of property management. Property accounting is focused on tracking revenue and expenses of rents, rent collection, budgeting, and financial reporting. Real estate bookkeeping helps you make wise decisions and enhance the financial performance of your properties with accurate and timely financial data.
A lot of money flows through your business each month with different types of financial operations. A property management bookkeeping strategy and property management accounting software are necessary to keep your financial management efficient.
In this blog, we are discussing property management accounting in detail from its basics to its importance.
What is Property Management Accounting?
Property management accounting functions on recording, reporting, and analyzing the financial data of real estate properties. Property management bookkeeping tracks records of rental payments, estimated budgets, and compliance with regulations, and facilitates a smooth process of identifying expenses and revenue from property.
The primary objective of property management accounting is helping property owners, stakeholders, and investors in decision-making related to the growth, maintenance, and further investments in real estate projects.
However, it needs qualified knowledge of property related to lease agreements, rent agreements, and property laws. You can assess the importance of property management accounting by reading the following section.
Importance of Property Management Accounting
Here are four reasons why property management accounting is important:
1. Facilitates business insights through accounts
Property management accounting helps in getting a deep understanding of the business through accounts. You can get a clear idea of property finances from accurate accounts. Here are some actions you need to follow for precise property accounts:
Regular Financial Tracking
Property managers' foremost task is tracking finances regularly from expenses to incomes. It includes tracking day-to-day expenses such as maintenance costs, repair charges, and others. It also involves tracking the income from management fees to rent payments.Analyzing cash flow
Property management bookkeeping also records cash flow analysis. This analysis tracks the flow of cash and identifies the cash flow requirements that alert cash payments of rents, fees, and revenues.Estimating budgets
Property management bookkeepers prepare budgets by evaluating previous financial data, financial decisions, and current scenarios of the real estate market. This budgeting and forecasting helps in making strategies related to property management and gives better information related to the performance of the overall business.Evaluating implementation
Property management accounting evaluates the implementation of financial decisions taken by property owners and managers. This clarifies the financial picture for the property management businesses like commercial buildings and business complexes.
2. Offers on-time business payments
Property management accounting offers an on-time business payment facility. With various property management accounting strategies, you can get the rent income, maintenance fees, and due payments related to the property.
Property managers also get assistance in accounts payable to other parties. You can ensure the timely payments of property management with the help of accurate accounting. By pre-decided methods of business payments, you can act on possible affecting factors.
The strategies and planning processes become easy with the support of proper property management accounts that give a streamlined financial guide, support vendor and tenant relations, and also observe the overall cash flow in the accounts.
3. Reduces costs
Property managers can identify the sections to reduce costs with the help of various property accounting systems. One of the systems includes detailed observations of the costs and expenses. This system tracks property management expenses related to maintenance, repair, rent, and utilities and facilitates potential cost cuttings in respective areas.
The second method of reducing costs in property management accounting includes a comparison method. This method identifies different cost areas and properties that can be compared with industry benchmarks. This comparison gives clarity to unnecessary costs and over-expenses.
The previous years’ financial statements also help in reducing costs and making a budget accordingly. In this forecasting strategy, the property managers can identify the constant costs of each year that can be reduced effectively.
4. Utilizes Business Assets
Property management accounting focuses on the full utilization of business assets and other business resources. This functions as identifying the areas of more utilization and facilitates the details about less utilized resources of the business. By tracking financial accounting of assets, property supervisors get help in decision-making regarding the utilized business assets.
Property managers can estimate budgets and allocate funds, wages, and other resources to the most appropriate business assets. This ensures the performance of the business assets to their full potential.
Eventually, property management accounting provides better control and development in resource allocation, budget forecasting, cost estimation, and other related tasks of utilizing business assets.
How to Set up Property Management Accounts?
Here’s the step-by-step process of setting up property management accounting. These are the best 10 tips for setting up property management accounts:
1. Specialized Bank Account
First, A specialized bank account for property management provides efficiency in tracking records of income, expenses, and rent collections. Meanwhile, it is also useful for property owners and managers in urgent conditions of billing, requiring finances and cash flow.
2. Accounting Diagram
In the second step, tracking accounting diagrams via spreadsheet or specialized accounting software in property management accounting gives full picture analysis of property accounts, income, expenses, wages, rents, fees, and vendor finances.
3. Property Management Accounting Practice
1. Cash Accounting
2. Accrual Accounting
After establishing a separate bank account and a particular accounting diagram for the accounting records, you need to decide the accounting method for the records.
There are two primary methods of accounts: cash-based and accrual-based.
Cash-based accounting processes note down the cash being paid and received. On the other hand, accrual-based accounting records expenses and revenues whenever they occur.
Both methods are useful in managing property accounts. However, you need to keep an eye on the expenses and revenues when you have adopted cash-based accounting. The same goes for accrual-based accounting.
4. Record-keeping Procedure
Now you need to decide on a particular record-keeping procedure that can facilitate you with accurate record-keeping of your property management accounting. There are two popular methods of bookkeeping including the single-entry method and the double-entry method.
The single-entry method acts where you can add an entry of debit or credit finance records. While the double-entry method records one entry in two sections, first in debit and then in credit.
Most Businesses choose double-entry methods for keeping records accurate and mistake-free. You can pick the accounting method for your property management accounts as per the requirement.
5. Reporting system
The reporting system of tracking receipts, bills, payments, invoices, and other financial data requires specialization in property management accounting. You can get help from property management accounting software that manages the overall records of your property finance.
6. Updated Collections
If your collections are updated with the latest payments and debits, then managing the property management accounts becomes an easy task. The updated cash collections, rental incomes, and other finances help property owners and managers maintain the cash flow in challenging financial situations.
7. Unpredictable Expenditures
The possibility of unpredictable expenditure in managing the property is always there in your financial decisions. This unpredictability of expenses requires your attention at the earliest, and you should have the urgent funds to mitigate the risk of these unexpected costs. To get the estimated number of funds, you can check the previous year's finances, particularly the unexpected costs.
8. Reconciled accounts
Reconciling property accounts from time to time helps you to identify the mistakes, typos, and errors in property management accounting. You can perform the reconciliation of the accounts at the end of the month to get accurate account and error-free records.
9. Cash Flow Maintenance
Having effective cash flow maintenance is necessarily important in the property accounting method. Whereas the positive cash flow doesn’t describe you have the issues of cash flow in property management accounts.
For instance, the security deposit refund to the client accounted as a liability even having the cash. Meanwhile, the large equipment for your business is described as a fixed asset in your accounts despite having a big amount of cash as an expense.
In cash-based accounting, you will get these records as positive cash flow whereas in accrual-based accounting you will get the clarity of the cash flow.
10. Tax Savings
By going with property management accounts, you have accurate data on your finances which helps you to identify tax savings opportunities. You can get the benefit of tax deductions by efficiently managing the property accounts. However, you need to be updated with tax regulations and tax deduction laws of authorities.
Conclusion
Thus, property management accounting can be your keystone for making future decisions for your business. You can get benefits of potential revenues, reduced costs, tax deductions, and accurate accounts with a well-maintained account of your real estate property.
However, if you still have queries, questions, and problems about how you can manage your property accounts, then you can Contact us.
We, Virtue CPAs & Advisors, are one of the best accounting firms in Atlanta, GA, specializing in Tax, Accounting, Consulting & Advisory services. Our experienced team of accountants will take care of all your queries whether related to property management accounting or other.
