One of the biggest challenges for property managers is accounting. From treating security deposits separately to collecting rent and tracking maintenance cost, proper property management accounting is a critical factor in success.
Security deposits are their own entity and should be treated as such. They are not extra income. Most states/province or locality have very firm and clear direction on security deposits, to how much, where to keep it, how to account for it and how to return it to renters upon their proper exit from your facility. They also cover deductions from the deposit for infractions or damage.
Timely rent collection ensures a positive cash flow. You also want to enforce your rent due dates so that tenants do not take advantage of any leniency. Inconsistent enforcement can also come back to haunt you in eviction proceedings. Encourage tenants to use online rent payment services to make it easier on them and you. Most rental property accounting software will assign it correctly to accounts and in financial statements.
This is simply knowing how much money is coming in versus how much money is going out. You need more of the first and less of the second to be successful. Make it a habit to check it one or two times a week to make sure you are not going negative, and if you are, what the reasons are. There are peaks and valleys in cash flow for businesses. By keeping up with it, you will know if you are in a “usual” valley instead of a panic or mismanagement situation.
These include your general journal entries, balance sheets, income statements, accounts payable and accounts receivable. Such reports give you monthly, quarterly and yearly numbers on your revenue and expenses. If you manage multiple properties, you are going to want these broke down by property and then fed into your overall portfolio for similar tracking. This is where a property management accounting software or landlord property management software with an accounting module can aid in the process, assigning income and expenses to the right account upon entry.
Accounts payable are the bills you need to pay. These can be maintenance costs, contractor and vendor expenses or just office supplies.
If you have an office staff, spread out landlords or superintendents in different facilities or a maintenance crew, you have a need for payroll management. Taxes need to be withheld, as well as social security and medicate, and there may be others, such as garnishments and benefits. Penalties for miscalculation of payroll taxes can be harsh.
Budget vs Actuals
As a good business person, you know that you need to budget for what you know, plan for the unforeseen and then compare that to what you actually are spending. This gives you visibility on your current state of affairs and the ability to plan ahead. This should be a regular event on your calendar each month.
This is all made easier by using accounting software for rental properties. By accounting for it all, you can be assured that you are financially healthy.