Running a property management business requires more than just managing tenants and properties—it demands solid financial management through bookkeeping.
Though often daunting, bookkeeping is the backbone of your business’s success. It ensures compliance with industry standards, prevents costly penalties, and builds trust with clients through accurate financial reporting.
Whether you use cash-based, accrual, or property-specific accounting, effective bookkeeping safeguards your finances which guarantees accuracy and transparency. In this article, we’ll share the best bookkeeping practices to keep your property management business financially sound.
9 Best Practices for Property Management Bookkeeping
Efficient bookkeeping is the backbone of any successful property management business. Accurate financial records help property managers stay organized, ensure compliance, and make informed decisions.
Here, we’ll explore nine essential practices to keep your property management bookkeeping streamlined and effective:
1. Use Separate Bank Accounts for Security Deposits
Never mix funds for security deposits, rental revenue, or business operations. This practice isn't just a legal requirement; it also simplifies financial tracking and tax preparation.
Having separate accounts also helps you protect security deposits from creditors during financial downturns. Moreover, this reduces the risk of mismanagement. Without separate accounts, monitoring business transactions can easily become a logistical nightmare.
2. Establish a Chart of Accounts
In the general ledger, your company's financial accounts are listed in what is known as a chart of accounts.
A well-organized chart of accounts (COA) categorizes all financial transactions and provides a bird’s-eye view of your business's financial health. A property management chart of accounts usually includes the following categories:
Asset Accounts: Property values, equipment, cash in bank, and security deposits.
Equity Accounts: Owner equity and retained earnings.
Expense Accounts: Taxes, insurance, maintenance costs, utilities, legal fees, marketing expenses, and administrative expenses.
Income Accounts: Rent income, late fees, pet fees, and parking fees.
Liability Accounts: Mortgage debt, accounts payable, accrued expenses, security deposits, and last month’s rent.
You need to have a well-structured chart of accounts to prevent errors and misunderstandings in record-keeping. This would also help you analyze data, make financial forecasts, and assess the profitability of your client’s business.
With an organized financial record, you can easily identify potential financial risks to your business and resolve them early and strategically.
3. Reconcile Accounts Regularly
Regular reconciliation of bank statements, client ledgers, and internal records helps detect and correct discrepancies.
For property managers, it is highly recommended that you regularly do a three-way reconciliation for your accounts. This means you must cross-check your internal books, trust account bank statements, and client ledger balances at the end of the month.
There are four steps to reconcile your account:
Step 1. Collect bank statements, receipts, invoices, rent rolls, and ledgers to balance your finances.
Step 2. Check your system for accurate transaction records. Also, check for missing, duplicate, or inaccurate rent payments, deposits, refunds, fees, costs, and transfers. If you notice mistakes, fix them immediately.
Step 3. Next, compare each account's initial and closing balances, revenue, and spending. If there is a discrepancy, determine why and amend your records.
Step 4. Reconcile and verify your accounts. Start with the bank balance and add or remove adjustments to obtain the adjusted bank amount. Both balances should match.
4. Automate Tasks Whenever Possible
Automation is a game-changer in property management!
It can significantly enhance efficiency by preventing repetitive tasks so you can focus on more strategic business planning. Also, it reduces the risk of human error in your data, financial reports, and calculations.
By automating your routine tasks as a property manager, you can handle a much-complicated workload that requires human interaction without sacrificing the quality of your services.
5. Use Cloud-Based Accounting Software
Cloud-based accounting software lets you manage your finances remotely without local software installations as long as you have an internet connection.
An example of this is Rentvine. It’s a property management accounting software that lets you handle your business's bookkeeping efficiently while streamlining your business processes.
Some of Rentvine’s key features that would be helpful for your property management business include:
Manager’s Ledger: Rentvine lets you automatically assign all management fees to the proper account in real-time.
True Double Entry GAAP Accounting: This feature ensures transparency in your financial statements through the software’s audit trail on every transaction.
Fast, Accurate, and Easy Monthly Closeouts: Settle any overdue invoices, management fees, or owners' payments in less than a minute.
Electronic Payments: You can simplify vendor and tenant transactions through its e-check, ACH, Credit and Debit Card, and NACHA online payment features!
Leveraging these easy-to-use solutions through a cloud-based accounting software for your property management business will certainly improve your bookkeeping practices.!
6. Keep Clear Records
Good record-keeping is a standard requirement when you have a property management company. Organized records simplify budget preparation, dispute resolution, and tenant communications.
Keeping a good record of your business finances can also help your financial management, especially when it comes to accurate budgeting and preparing financial forecasts. Moreover, these records can also act as your security and protection when disputes arise with contractors or tenants.
7. Track Income and Expenses Carefully
Property managers must carefully track income and expenses to optimize their business's cash flow. This helps them make data-driven decisions for rental application prices based on market trends.
When you thoroughly know your business expenses, you can also control your budget through cost-cutting and reducing unnecessary operational costs. As a result, this practice may help improve your profitability and allow you to create a realistic budget for your company.
8. Prepare Financial Statements Regularly
Regularly updated financial statements provide a clear picture of your business's financial health. These insights help secure favorable loan terms, identify cost-saving opportunities, and prepare for future investments.
As a property manager, keeping accurate and up-to-date books helps identify potential tax deductions for your property business. Overall, this means security for your business and future investments.
9. Get Help from a Professional if Needed
You might think the purpose of your bookkeeping is to make more money, but it’s actually the other way around. Professional accountants and bookkeepers are here to save you from unnecessary costs.
Not knowing all the nooks and crannies of recording your finances might lead to legal complaints and costly penalties.
Some of the risks you might face if you do your property management bookkeeping without the guidance of a professional are:
Complex Tax Implications
Property management involves juggling various costs like taxes, maintenance, depreciation, rental income, and insurance. Without professional accounting guidance, it’s easy to make tax filing mistakes, leasing to costly penalties and interests.Time Constraints
Being a property manager is a demanding job. You’re always under pressure. Outsourcing your bookkeeping needs means having more time on your plate to handle other important responsibilities.Risk of Errors
When you do your business bookkeeping without help from the experts, you could face huge risks of errors. As a property management company, you don’t want that to happen, especially when it comes to your business’s financial records.Lack of Specialized Knowledge and Skills
Professional bookkeepers can efficiently manage property management accounting tasks. Without their help, it can be challenging to identify unique opportunities and financial risks in your business.
If you’re looking for a trusted bookkeeping company for your property management business, Bynnd is one of the teams that can help you with your financial and accounting records. They will take your business to the next level through their unmatched expertise in trust account reconciliations, full-service trust accounting, and consulting services.
Check out their website to learn more about their services and pricing.
Automate Accounting Tasks with Rentvine’s Cloud-Based Solutions
Effective bookkeeping practices are essential for property managers to maintain financial clarity and compliance. Key practices include separating funds into dedicated accounts, maintaining a clear chart of accounts, reconciling records regularly, and embracing automation through cloud-based accounting software like Rentvine.
With reliable cloud-based software like Rentvine, you can make your bookkeeping efforts easier and more efficient.
Aside from our property management accounting system, Rentvine is also a user-friendly cloud-based property management software that helps you automate your property management business.
Today is the perfect time to streamline your property management processes and take control of your finances with Rentvine’s powerful solutions.
Schedule a demo now and take the first step toward hassle-free bookkeeping!
