Biggest Challenges in Accounting for Property Management Companies

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Biggest Challenges in Accounting for Property Management Companies

OHI

@OHI

June 21, 2023

Miscellaneous

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?

Here are some risks you could face in property management accounting:

Duplicate Bills

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!

Accounts Payable accountants accounting

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OHI

OHI is a specialized finance and real estate accounting outsourcing service provider with operations out of New Delhi (India) since 2006 and having a representative office in New York and California We have strong functional outsourcing expertise in end to end accounting processes covering routine accounting activities (AP, AR, GL, Recos), payroll, month end closing and reporting, and year-end finalization processes. Our team also has rich experience in financial modeling, financial analysis, business research and business plan formulations.