PropertyManager.com » Accounting

Financial Management Plan

Mary Girsch-Bock — Thu, 01 Sep 2011 20:41:03 +0000

If you’re actively seeking new clients (and who isn’t) writing a solid management plan can go a long way towards signing that management contract. Multi-unit managers in particular have to show owners that they can do more than simply collect the rent and evict non-paying tenants. A good management plan shows owners a broad picture on exactly where you plan to take the property, and requires a high level of detailed information on everything from optimum rents to yearly operating costs.

When creating a new management plan, the following areas need to be as accurate as possible:
Optimum Rents – Keep in mind that most properties never rent all of their units at optimum levels. There are varying reasons for this; everything from a lack of popular amenities such as a swimming pool to the age of the property. Even market conditions can dictate the amount of rent that can be charged for a property.

Total Anticipated Revenue – While all property managers would love to be able to collect 100% of the revenue owed, realistically, you must account for rental losses that can occur. These losses reflect everything from unanticipated vacancies to tenant skips. It’s important to reflect this in the management plan, or owners will have an unrealistic expectation of revenue that will be hard to explain later.

Operating Costs – Be realistic when estimating expenses such as staff salaries, office supplies, minor repairs, insurance, taxes, and administrative and management costs. Better to be under budget than over.

Reserve Funds – If drafting a management plan for a large building, it’s vital that reserve funds be allocated and expensed in the management plan. A good estimate is between 10 – 15% of the total cost of all maintenance and repair expense for the previous year.

Five-Year Forecast – While a five year forecast is considerably more difficult to prepare, the level of information provided to potential clients can reassure them that you are the best choice to manage their building. A five-year forecast provides owners with a long-term projection of the income potential of the property, taking things such as annual rent increases, vacancy and rental losses, and expenses and adjusting the annual totals by a realistic percentage.

Preparing a realistic management plan is never an easy thing to do. Managers constantly stress about under or over-estimating revenues and costs, but if you let the market and your experience guide you, you’ll be signing more management contracts every day.

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Choosing the Right Property Management Accounting Software

Mary Girsch-Bock — Thu, 12 May 2011 12:00:30 +0000

Has your current property management software program been giving you more problems than solutions? If so, you may be ready to look for new property management accounting software. Before you do anything, take a brief inventory of your needs, your employee’s needs, and what you absolutely have to have. If you’re not sure what you need, take these suggestions under consideration.

Remote Access
In my eyes, Remote Access is not negotiable. Being able to connect from anywhere is an absolute must these days, particularly for property management firms that traditionally deal with employees working in remote locations in different parts of town, or, in many cases, different cities and states. To ensure that all of your remote workers have the same access to the same data, invest in web-based software that is as easily accessible from Chicago as it is from Miami.

Portals
Think about how much easier your job would be if tenants could log into a secure account to pay their rent, check for any messages and send in maintenance requests. Just slightly less important than remote access, tenant portals allow your tenants to become more rather than less involved with the community, as they will have instant access to resident newsletters, rental information, and can have their own rental account set up and easily accessible.

Electronic Bill Payment
While companies that manufacture paper checks may not be too happy about this feature, paying bills electronically saves paper and toner costs, eliminates lost checks and delayed payments, and make it easy to track payments made. It also eliminates outstanding checks on your bank reconciliation, making that process a whole lot easier.

Website Integration
While almost any program provides some web access, you want to look for a software program that actually integrates with your company website. True integration allows potential tenants to browse your website, take a peek at floor plans and any property videos and photos you may post, and even arrange to view a specified unit. Some companies even post property diagrams where applicants can see which apartments are available and choose the unit they may be interested in. This also works well with single family homes, where an interactive map displays exactly where the home is located, allowing applicants the ability to choose whether they wish to look at the property prior to contacting leasing personnel.

While there are a lot of other features that may be on your ‘must have’ list, purchasing a software product with these features will eliminate the need to look at software again in the foreseeable future.

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Property Management 1099 Cheat Sheet

Mary Girsch-Bock — Thu, 13 Jan 2011 01:46:59 +0000

Even though the IRS has a thorough set of instructions available for 1099 processing, many people still find themselves unsure of who should receive a 1099 and what the minimum amount is. Others are unclear about when they need to mail the 1099’s by, or when they need to be filed with the IRS.

For the record, contractors, service companies, and property owners should all receive a 1099. General speaking, $600.00 needs to be paid out to that individual or service company before a 1099 will need to be processed. 1099’s generally do not need to be processed for corporations, although there are some exceptions. I’ve made a list of suggestions that you can use as a cheat sheet, or as a refresher of the basic rules you should know to make 1099 processing quick and painless.

Run a preliminary report. Review closely and make sure that you have the appropriate TIN (Tax I.D. Number) or Social Security number prior to processing. At this time, you’ll also want to make sure that you have specified what type of payments you’re reporting (rents, other income, non-employee compensation) so that the totals will appear in the correct box.

If your system does not track 1099 information and eligibility, be sure to investigate one of the 1099 processing programs that allow you to enter contractor/company information and payment totals separately from your accounting software. You do not want to process 1099’s manually. Take my word for it.

If you typically make rental payments to owners electronically, be sure to check contact information prior to processing the 1099. This way, returned mail can be kept to a minimum.

Don’t forget about contractors or other service people you’ve paid throughout the year. This includes cleaning services, carpet cleaners, electricians and painters. If you’ve paid them over $600.00, they will need to receive a 1099 as well.

Attorney fees paid will require a 1099 regardless of whether they are a corporation or not.

1099’s must be in recipients hands no later than January 31st of the current tax year. The IRS requires that you file all 1099 information with their agency by March 31st. Be sure to promptly follow up on any subsequent IRS notices after filing, such as an incorrect TIN and update your own records accordingly.

If you’re still confused, visit the IRS website http://www.irs.gov/instructions/i1099gi/index.html, where you’ll find more in-depth information on 1099 processing.

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Cash Versus Accrual Accounting – Which is Right for You?

Mary Girsch-Bock — Thu, 02 Dec 2010 15:00:07 +0000

There are distinct differences between cash accounting and accrual accounting methods. When setting up your property management company for the first time, you’ll have to choose which of these property management accounting methods you will be using for recording accounting transactions. While many large companies should use the accrual accounting method, some smaller management companies may find that the cash accounting method suits their business better.

Cash Accounting
While there are many differences between these two accounting methods, the major difference is that when businesses record transactions using cash accounting, the transactions are recorded when money is received or money goes out. In other words, when you receive a rental payment in the month of May, it is recorded as income received even if the rental payment is for June.

The same goes when paying bills. If you receive a phone bill for $100.00 that is for the following month, the expense of paying that bill will be recorded when the cash goes out – when you pay the bill. For smaller management companies with just a few properties and routine bills, this method may work fine. But many smaller companies often find themselves outgrowing the cash accounting method quickly.

Accrual Accounting
The accrual accounting method records income and expenses when they occur, not when they are paid. If you invoice a tenant for June rent, rental income will be recorded in June. It doesn’t matter if the tenant pays May 31st, the income will still be recorded in June.

The same goes for expenses. If you receive a phone bill for June phone service, it will be expensed in June, even if you don’t pay the bill until July. As income and expenses are recorded in the actual month in which they occur, the resulting financial statements are more accurate, and are able to present a more complete picture of the financial health of your business.

Using accrual accounting also allows property management businesses to account for other items in their financial statements such as long-term assets, or other miscellaneous expenses such as the cost of employee benefit plans and retirement funds.

So, new business owners or those converting over to a property management software system for the first time; be sure to take some time to think about which method will work better for your business. If you’re still unsure, talk to an accounting professional who can guide you to the accounting method that is right for your company.

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Bank Reconciliation Best Practices for Property Management

Mary Girsch-Bock — Fri, 05 Nov 2010 14:00:48 +0000

I’ll admit that bank reconciliations are a pet peeve of mine. Not the bank reconciliations themselves, but the number of people who routinely toss them in the ‘to do’ pile, leaving them sit for a month – or three. The real downside of that scenario is that while those bank statements sit in a pile, you’re totally unaware of any bank charges, fees, or incorrectly posted items that have been deducted from your account.

Remember, a true bank balance will not be known until your bank statement is reconciled. It’s also important to remember that banks process thousands of transactions every night, so while the odds are pretty good that check and transaction amounts will be accurately entered, it’s not a given. Banks make mistakes too, but you won’t know if you don’t reconcile bank transactions with your GL account. I’ve had checks posted to my account that belonged to someone in New Jersey who happened to have an account number very similar to mine. I’ve had charges posted to my account for services that I did not receive or request. What would have happened if I had not looked at my bank statement?

There are those who believe that they can simply glance at a statement and determine if it’s accurate. I disagree. While a bank balance may fit into the parameters of what you think is correct, until each transaction is examined for accuracy, that bank balance should be suspect.

Luckily, most accounts can be reconciled in less than thirty minutes. Here are a few tips and tricks for getting them done quickly and accurately:

Have a copy of your current GL and check register handy. This will save you a lot of time later. Dedicated property management software can help with this.

Check the opening bank balance and compare it to the ending bank balance from last month. These should always match. If they don’t, your bank made an error that will need to be corrected.

Check for any service charges or account debits. If they are legitimate, they’ll need to be posted to your GL. If they’re not, you’ll need to contact your bank ASAP.

When marking off cleared checks, don’t just cross off check numbers; make sure the amount of the check written is the amount that the bank has posted.

If you end up out of balance, check your GL first. More than likely, you’ll find an unposted (manual) check or other expense that was not recorded.

Following these tips will help you stay current with your account reconciliations and prepare your property management office for year’s end without spending a lot of time.

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Preparing Your Property Management Office for Year’s End

Mary Girsch-Bock — Thu, 07 Oct 2010 14:00:03 +0000

Just a few short months ago, you were enjoying the hot summer sun. Suddenly it’s October, which means only one thing; the end of the year is rapidly approaching. Every year you vow to be prepared for the end-of-the-year activity that seems to overwhelm you. This year, get a head start by beginning the necessary year end preparations early.

What should you be doing to end the old year smoothly, while transitioning into a new year?

Make Sure Your Paperwork Is Up To Date
This includes bank reconciliations. I’ve mentioned this before, but it’s so important to keep bank reconciliations up to date. So many smaller companies tend to put these to the side in favor of more “important” work, but knowing your real bank balance, knowing what checks have not cleared, checking for erroneous charges or postings is important work. While reconciling is important for all bank accounts, it’s imperative for your trust accounts. You must know what is in any trust account at all times, particularly in advance of any year-end audits.

Take A Look At Your Current Technology
Determine if your current technology is still working for you, and will continue to do so in the future. Year end is a perfect time to determine what still works, and what may need to be updated. Upgrading your property management software, a server, your database, is not anyone’s favorite activity, but it’s easier to do so before it becomes a necessity.

Keep Your Security Deposit Refunds Up To Date
In most states keeping your security deposit refunds up to date is a legal issue, but when I say up to date, I’m really referring to keeping all former tenant paperwork filed properly, making it easy to locate backup if necessary.

Start The Budget Process For The New Year
If you begin making notes now, the final budget preparation will be much easier, and much more accurate.

Set Goals
Start setting goals in the office for what you want to accomplish in the New Year. Do want to increase tenant retention rates? Draw up a program that will help your staff reach this goal. Do you want to increase leasing rates? Work with your leasing staff to establish a reachable goal that will increase both their confidence along with your occupancy rate.

Traditionally, the last quarter of the year is slower in activity, making this a perfect time to get your property management company organized and your employees excited about the upcoming year.

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Using Excel Instead of Property Management Software Is Risky Business

Mary Girsch-Bock — Mon, 30 Aug 2010 19:11:47 +0000

It’s no secret that there are a lot of Excel users in the property management community. An outstanding spreadsheet program, Excel frequently plugs in the gaps commonly found in accounting programs. But there‘s a group of property managers that may find themselves relying on Excel a little too much.

In recent years, Excel aficionados, fed up with the intricacies of accounting software products, have begun using Excel as their primary accounting software. And while there will always be success stories about those who chucked their “non-functional” accounting software for an easier life with Excel, the fact remains that using Excel exclusively as your accounting software product will ultimately cause more problems than it fixes.

Here are things Excel lacks when compared to a dedicated property management accounting software system:

Data Integrity
Excel’s flexibility, an asset on most fronts, can prove to be a detriment to those who utilize it as a complete accounting program. While flexibility in a spreadsheet program provides users the ability to customize data and change formulas when needed, the downside to using Excel as a complete accounting solution is that it customizes data and allows formula changes. Even an elementary accounting product offers a semblance of controls to ensure data integrity.

Protection Against User Error
Excel offers no double entry accounting system. The accounting equation Equity = Assets – Liabilities has been used for centuries with good reason. It keeps books in balance. And while any information entered into a computer is only as accurate at the person entering it, the fact remains that an integrated accounting program offers a level of protection that Excel cannot.

Ease of Use
You have to be really skilled in Excel in order to utilize it as an accounting software substitute. Yes, there are numerous templates available that make this process a bit easier, but in order to keep an accurate and organized record of your business transactions, you’d better know your way around Excel. In contrast, accounting software products have made it easier than ever to set up a solid financial system that requires little maintenance.

Efficiency
It’s much easier to track transactions, balance bank accounts, and produce accurate financial statements when using a traditional accounting program. Again, while it can be done using Excel, a small property management company that does not wish to spend a lot of time on accounting would be better served using standard accounting software, rather than spending hours trying to set up an Excel spreadsheet to produce the same information. In addition, some property management software programs have integrated the accounting functionality with online rent payments.

Using Excel as the spreadsheet program it was designed to be will produce more benefits to the property manager than spending hours trying to shape it into an accounting program.

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Proper Use of Property Management Trust Accounts

Mary Girsch-Bock — Thu, 29 Jul 2010 22:53:00 +0000

Misuse of trust accounts is the number one reason why property management companies are audited. That’s why it’s vital that the proper trust fund accounts are established as needed, and used properly.

Improperly using trust accounts that were established to maintain owner funds and tenant security deposits can result in stiff penalties, such as license suspension or revocation. Improper tracking or usage of tenant security deposits can also result in the management company being responsible for the cost of damages incurred while the property was occupied.

Trust accounts are traditionally used as a method to keep tenant deposits and rent payments separate from operating capital. For example, in both California and Arizona, rent payments must be placed into a trust account no later than three business days after the funds have been received.

Funds placed in the trust account can only be withdrawn by the broker or broker-officer whose name the account is established under. Brokers are not allowed to tap into these funds except for trust related items. To complicate matters, many states currently require that security deposits be kept in a trust account, with some state statutes requiring that the deposit be in a separate trust account, while others allow them to be placed with the owner’s trust account. For instance, in Arizona, brokers must maintain a separate account for all tenant security deposits. Note that in most states, security deposits received on broker-owned properties do not have to be deposited into a separate trust account, but it’s always wise to check your own state’s requirement.

In recent years, some states have implemented new laws requiring property managers and owners to specify in the management contract exactly how trust accounts will be used. Even if your state has statutes specific to the use of trust accounts, it’s best to spell out any specifics in the management contract.

The Department of Real Estate in each state has its own set of established rules and regulations governing the proper and improper usage of trust accounts, and it’s wise to get yourself up to speed on these regulations.

While your state’s department of real estate will continue to perform audits, if your management company has followed the statutes, and maintained ‘good accounting practices,’ you should be able to sail through any audit that your property management company may be subjected to.

In the next article, I’ll go over some practices you’ll want to implement immediately, if you’re not already doing them, along with some things to avoid.

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Tap In to Tax Time: Providing Resources for Residents

Heather Blume — Tue, 09 Feb 2010 15:00:50 +0000

It’s the start of the new year, so inevitably the thing in the forefront of everyone’s minds right now is the same: tax time! Okay, maybe not. When it comes to taxes, you’ve got basically two camps of people. You have the ones who know they’re getting money back, so they want to file as quickly as possible. Then you have the rest of us, the people who have to pay in, and who want to procrastinate payment as long as possible. Whichever camp you fall in, even the standard 10-40EZ form has gotten extremely complicated over the last few years.

To paraphrase Benjamin Franklin, taxes are universal. Everyone has to deal with them, and more importantly, every renter has to deal with them. Why not capitalize on one of the few things you can be sure affects everyone? Break out the outreach marketing and talk to your local accounting and tax firms. Tax season gives us a few great ways to court resident retention.

One of the ways you can help your residents out is to compile an info sheet of local and online tax resources, such as the free filing options on Turbo Tax, H&R Block, or other large national tax firms. Another item of information you might want to consider including is online locations for state and federal tax codes / laws, as well as the government resources for printing free tax forms. An additional idea is to work with your local library, a place that often keeps tax forms open and free for the public to use.

Another successful idea that I saw implemented last year was a community that brought in a free tax advisor once a week for their residents during tax season. They used Tuesday nights, but I would guess that any evening or even a Sunday afternoon would work just fine. Imagine as a frustrated and confused resident, being able to turn to someone on site as opposed to making call after call and sitting on hold for 30 minutes or more. One of the best ways to connect with any resident or any client is to reduce their stress, and remember, when we connect, we retain!

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Ditch That Rent Check: A World of Online Payment Options

Jim Semick — Thu, 28 Jan 2010 17:35:50 +0000

Sure, the lowly check will be with us for a while. But that doesn’t mean that you can’t help send checks the way of the dodo bird. According to a Federal Reserve System study, check usage is in steep decline, and checks now represent only 30 percent of all non-cash payments. Electronic payments are now the clear winner with consumers.

But for many property managers, checks continue to be business as usual. If you are like most property managers in the U.S., you have explored online payments, but have not made them a core part of your operation. Even if you have implemented check scanning, there is a cost to every check you handle – moving more of your resident payments online can save your property management business time and money every month.

If you haven’t yet made the move to electronic payments, ACH and Credit Cards are great ways to go checkless. There are many services that can help you implement a solution quickly and begin offering online payment options to your residents.

ACH (Automated Clearinghouse)

ACH is an electronic funds transfer from the resident’s checking or savings account to your operating account. Residents pay their rent directly online or through a transaction that you initiate. You typically receive funds 48-72 hours after the resident pays. You can get ACH processing from many payment processing companies or directly from your bank.

If you get the ACH service from a payment processing company, the resident (or you) pays a convenience fee typically ranging from $1.00 to $3.00. The advantage of picking up the tab is that you get more residents signing up for the program, and thus greater savings for you by handling fewer checks.

Online payments shouldn’t be expensive however. You can find solutions with a low transaction fee structure and low monthly fee. Another important factor in your decision: Your payment solution should seamlessly integrate with your accounts receivable system. Any savings you get from online payments will be wasted if you are stuck entering payments by hand into your system.

Your bank can offer you ACH services at a low cost, but the hassle and time implementing this yourself will reduce any savings you might realize. You will need to have a software solution that can create an electronic file in the correct format and then upload that file directly to the bank for processing.

Credit Cards

There are a variety of ways you can use credit cards in your operation. Many property managers accept cards for deposits and application fees only, while others will gladly accept them for rent.

The challenge with credit cards is the high transaction fees that must be paid by you or the resident. For rent payments, these fees can be significant, running $10 to $30 or more. A resident who is faced with a steep late fee from you may gladly pay the credit card fees instead.

While you can become a credit card merchant and process the payments directly from your office, the easiest way to accept credit cards is to partner with a service that will administer the program and collect the transaction fees directly from the resident. These services will often offer an online portal for your resident to pay directly online.

Of course, the check will be with us for the foreseeable future, but there are many options that can help you streamline your process today and reduce the pain of rent week. The choice you make depends on the options you want to offer your residents, how much you want to pay for offering that convenience, and whether you want your operation or the resident to pick up the cost.

Jim Semick is the Director of Customer Development at AppFolio where he is responsible for software market development, new property management software technology, and working with property managers to provide input into the AppFolio Property Manager product.

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