Managing properties, whether residential or commercial, is a complex task. Among the various responsibilities that property managers juggle, bookkeeping is an essential aspect that keeps the financial health of a property in check. However, property management bookkeeping can often pose challenges, especially for those new to the field or those managing multiple properties. In this blog, we will discuss the most common property management bookkeeping challenges and how to overcome them.
Misclassification of Costs
Property management involves various expenses, from regular maintenance to unexpected repairs, and these costs need to be categorized accurately for effective financial management. The misclassification of costs is a common issue that leads to confusion, inaccurate financial statements, and potential tax issues.
Solution: To avoid misclassification, establish a clear chart of accounts that outlines each category and subcategory of expenses. Train your staff to understand the different classifications, and periodically review your expense categorization to ensure accuracy.
In many cases, it’s difficult to train your employees on the ins and outs of managing expenses, whether it’s for lack of time, skill, or budget. At OJO Bookkeeping, we can take the stress off of your shoulders. When you hand over your books to us, we keep meticulous records so that you don’t have to.
Managing paper receipts is a time-consuming and error-prone process. Receipts can easily be lost or damaged, leading to incomplete expense tracking and issues during audits. Additionally, manual data entry increases the risk of errors and inaccuracies.
Solution: Implement a digital receipt management system, allowing you and your staff to scan or photograph paper receipts, which are then automatically stored and organized in the cloud. This reduces the risk of losing receipts and allows for easier retrieval during audits.
Homeowners' Association (HOA) Payments
Managing HOA payments can be a challenge, as they involve multiple parties, various fees, and different payment schedules. Failure to accurately track and manage these payments can result in conflicts with homeowners, financial discrepancies, and legal issues.
Solution: Utilize property management software that includes HOA management features, such as centralized billing, automated invoicing, and real-time financial reporting. This software can help streamline the process, reduce errors, and improve communication with homeowners.
Lack of Internal Audits
Regular internal audits are crucial for ensuring the accuracy of your financial records and identifying potential issues before they become major problems. However, due to time constraints and other priorities, many property managers overlook internal audits, which can lead to errors, fraud, or regulatory non-compliance.
Solution: Establish a routine for conducting internal audits, whether monthly, quarterly, or annually, based on the size and complexity of your property management business. This can help you identify discrepancies, catch fraud early, and ensure compliance with regulations. Additionally, consider outsourcing internal audits to a third-party accounting firm for an unbiased review.
Combined Bank Accounts
It is not uncommon for property managers to manage multiple properties with a single bank account. While this may seem convenient, it can lead to financial confusion, difficulty in tracking individual property performance, and possible legal issues.
Solution: Open separate bank accounts for each property you manage, keeping the finances for each property distinct and easily traceable. This makes it simpler to monitor the performance of each property, calculate accurate financial reports, and comply with legal requirements.
Choosing the Right Accounting Software
Choosing the right accounting software is crucial for streamlining your property management bookkeeping processes. However, with numerous options available, it can be challenging to find the software that best suits your needs.
Solution: Before selecting accounting software, carefully evaluate the specific requirements of your property management business, such as the number of properties you manage, the complexity of your financial transactions, and your staff’s technical proficiency. Consider factors like ease of use, scalability, integration with other property management tools, and customer support. Read reviews and request demos to ensure the software aligns with your needs and budget.
Many of our clients use Appfolio, Buildium, or Rentvine as their accounting software. Specifically designed for property managers, each software is user-friendly and intuitively designed, offers a variety of neat features, and has a robust customer service support team.
Navigating the complexities of property management bookkeeping can be a daunting task, but by recognizing and addressing common challenges, you can enhance the financial health of your properties and the efficiency of your business operations. By implementing solutions such as creating a clear chart of accounts, utilizing digital receipt management systems, leveraging specialized property management software, conducting regular internal audits, maintaining separate bank accounts for each property, and choosing the right accounting software, you can overcome these hurdles and streamline your bookkeeping processes.
Ultimately, tackling these challenges head-on not only safeguards your financial records but also allows you to focus on growing your property management business and providing exceptional service to your clients.
If you’re looking for additional support in ensuring your books are managed properly and efficiently, schedule a call with OJO Bookkeeping to see how we can serve you.