Here are some tips to help you with your property management accounting, so you can avoid problems and take advantage of what’s available.
Be meticulous with financial records
The better you keep your records, the easier it will be to track what you’re doing and provide solid protection in case you’re audited. Plus, you’ll be able to see trends and answer common questions about your real estate investment. This means you may be able to spot potential problems in the early stages and make plans to counter its effects. Additionally, keeping good financial records helps with the following;
– Maintenance issues
– Market performance
– Competitiveness of the local market
The more documents you keep for each transaction, the better off you will be. This is where going digital can really help if you have the proper backups.
Create trust accounts
You want the funds allocated to running your business to be used appropriately. So you’ll need to start by setting up trust accounts to help you get organized and make sure your money is being spent the right way. Unfortunately, misuse of trust accounts is the number one reason property management companies are audited, so you’ll need to be careful.
Create an account for security deposits and an account to collect rent and pay bills for each client. It may not be required, but it will help you keep separate records that will protect you during the audit process.
Separate personal funds and business funds
Good property management accounting separates your personal funds from those who run the business. You might be tempted to funnel one into the other, but pooling the funds is illegal and will land you in trouble. You’ll need to check local, state, and federal laws, but here are a few areas you need to be aware of.
– Deposit funds for own account
– Withdraw commissions and fees from own account
– Set time limits on when funds can be withdrawn
– Do not mix personal funds with your business funds
By following these simple rules, you can stay out of trouble and keep your funds segregated appropriately.
Effective property management accounting means you can build on your success while minimizing mistakes. Essentially, you can avoid the basic problems that often plague property managers by simply maintaining separate accounts and meticulous records that ensure your protection in the event of an audit.
Plus, if you use good property management accounting practices, you can spot potential problems as well as great opportunities to make your business even more money. It takes a bit of time, but following good practices brings rewards that you may not see today but appreciate tomorrow.