As a property manager, accounting is a significant part of your work. In 2020 alone, 5.64 million existing homes were sold in the US. With so much transactional data, you need to have strong accounting skills to maintain a realistic picture of your company's financial health.
According to Wasp Barcode Technologies, 60% of small business owners feel they do not have adequate accounting knowledge. This can lead to poor management of records and an inaccurate understanding of your company's financial situation.
In property accounting, there is little room for mistakes. If you are just getting started, then here is a helpful guide on the common accounting mistakes you can avoid as a property manager.
1. Not Separating Business and Personal Accounts
Technically, your commission and salary belong to you as a property manager. But, mixing your personal and business transactions is not only unprofessional but also inefficient. Using your personal account makes it difficult to distinguish between business and personal transactions. This leads to additional work during tax season and may also add to tax costs.
Luz Urrutia, a member of the Forbes Finance Council, says that using your personal account for professional transactions makes it difficult to gauge the financial health of your business.
Having a separate business account keeps all your business transactions in one place. It also makes you more credible from the client's perspective. By maintaining individual accounts, you can maintain a clear audit trail and a strong business credit score.
2. Insufficient data backup and security
Your accounting data is under constant threat, even if it is stored digitally. Several factors like a technical failure, mistaken deletion, or even a power outage can cause significant data loss.
Hosting Tribunal reports that 40% of all data losses are caused by hardware failure. It further adds that 40-60% of small businesses won't recover from a data loss.
Backing up financial data to a cloud is an efficient choice for property managers. You should back up your data to:
Protect your data from human errors, malware, and hard disk damage.
Move data from one server to another
Avoid loss during major software or website updates
Using the cloud also allows you to automate frequent data backups and remote restorations using any connectible device. Your data is also secure since it is encrypted.
3. Lack of adequate training sessions
Property accounting requires occasional software updates. Different accounting software has different standards as well, which may not suit your needs. You don't want to look for workarounds every time. That increases workload and complicates time management.
Employees need to devote time to familiarise themselves with existing systems and software updates. Training ensures that the workers make the best use of the features on offer. Learning the shortcuts will save time and data entry errors.
KriyaGo has a team of experienced and professional accountants who can handle your accounting worries. We will help you free up resources and avoid making things more complicated. Let us help you manage your portfolio of properties and address your unique set of bookkeeping needs.
4. Unsuitable resources
Property accounting needs two things: the right software and the right person. Generic accounting software lacks features like separate profit or loss statements per property or automatic monthly payments, essential for property accounting.
According to Forbes, RPA has decreased the accounting time from several months to a few weeks. You can choose a dedicated software for property accounting or consult KriyaGo so we can build one for you.
Similarly, hiring the right person is also important to get the best out of the software. Most businesses employ inexperienced staff when they are new. This can lead to low rates of production and increased business.
Hiring a professional can build a good framework and set the right pace for your business.
5. Tracking commissions separately
Property accounting needs two things: the right software and the right person. Generic accounting software lacks features like separate profit or loss statements per property or automatic monthly payments, essential for property accounting.
According to Forbes, RPA has decreased the accounting time from several months to a few weeks. You can choose a dedicated software for property accounting or consult KriyaGo so we can build one for you.
Similarly, hiring the right person is also important to get the best out of the software. Most businesses employ inexperienced staff when they are new. This can lead to low rates of production and increased business.
Hiring a professional can build a good framework and set the right pace for your business.
6. Disbursement of funds before closing the transaction
You cannot consider the funds held in a trust or escrow as a commission before the official documents are signed. If you disburse these funds early on, your brokerage will not comply with the governing bodies. Such disbursements happen often but are not a good idea.
Moreover, if the commissions are renegotiated last minute, you will have to collect back the disbursements. What should have been a single-step reversal of funds will turn into a multi-step, complicated process.
It is best to wait till all the documents are signed and the keys are handed over before distributing the checks to everyone involved.
7. Lack of efficient scaling
Almost all property management companies aim at one thing--growth. You can achieve this goal in several ways. You can add more people to different departments or get more agents and brokers. But with the development of your company, you will need to upscale your back office accounting.
Several companies fail to upscale their accounting, which is inefficient to deal with the increased transactions that come with its growth.
You can add more staff to your back office. But a better option is to digitize your accounting through a real estate software support company like KriyaGo, which provides the right software solutions.
8. Inaccurate data classification
Many property managers make mistakes while classifying data. Not organizing data accordingly (such as capital expenditure, repairs, and maintenance) can make the audit process difficult and time-consuming. By accurately classifying them, you can save on taxes as different items attract different amounts of tax.
Data classification can look time-consuming. But with a monthly review, you can get your financial data right and generate important reports such as P&l statements and tax documents.
If you are unsure about data classification, you can get your books checked by a professional to ensure the proper data classification.
Professionals know the industry norms well and can save you from tax complications later on. They can also advise you on the right property accounting software to make your bookkeeping process easier.
9. Not following the tax filing process
Not following the proper tax filing process can cause problems later on. Most investors look at the tax records of your property before investing. Having poorly managed tax records can negatively impact your relationship with your clients.
There are two ways you can file your tax returns: cash and accrual.
Cash accounting records your transactions as they are received or paid. Accrual accounting records them as revenue and expenses.
Consider both methods along with the tax guidelines of your state before filing tax returns. If you find the tax rules confusing, you can file them through professionals specializing in real estate accounting.
10. Avoiding internal audits and account reconciliation
Internal audits are essential to get a bird's eye view of your company's property accounting. Without frequent audits, you just have a vague idea of the expenses and taxes, the profits and losses, and you miss out on many details.
Auditing every month gives you a clear idea of the loopholes, which allows for timely intervention and correction. Regular financial check-ups keep you updated on the portfolios and throw light on the company's financial strength.
Similarly, real estate accounting is incomplete without reconciliation. No matter how careful you are, there can be missed entries and incorrect transactions. It is important to verify your accounting books and see that all transactions are reflected in your bank account.
Reconciliation can help in identifying bank errors and other mistakes that can cost you a hefty sum. Most property managers skip reconciliation as it is a complicated process.
To make it easier, you can choose accounting software that allows reconciliation. Though it can be time-consuming, sparing a few minutes every day to verify your bank transactions can be beneficial in the long run.
Bottom line
By implementing a solid accounting platform, you can minimize all the errors and speed up the process. Choosing user-friendly software with options built for real estate accounting is an excellent way to get started. If you have several tools that you love to use, you can integrate them seamlessly through KriyaGo.
How can KriyaGo help
KriyaGo's back-office accounting is one of the best in the industry if you plan on outsourcing. It is also more economical than keeping an in-house team of accountants. By choosing KriyaGo, you get access to expert resources and better software at lower costs. It also gives you more control over your finances while ensuring that your data is in safe hands.
Book a free consultation with a KriyaGo Advisor to know more!
