With real estate, property management doesn’t end with finding new renters, changing fused bulbs and fixing leaks in the ceiling. Those are routine. The larger part of the task is managing your finances. This essentially boils down to accounting and accounting practices that bolster rather than blight the development of your business.
What can you do to manage your accounting well?
- Create a program to manage your spending; then standardise it
The first part of the program is to ensure you have proper spending policies so when employees report back on their spending there is more visibility and transparency. Once the spending decisions are established, it’s easier and smarter to be frugal. The second part is to standardise this program – meaning you don’t waste an entire meeting discussing something trivial. When you list out trusted products or vendors that have lived up to the mark in the past, you can fall back on them in the future, instead of trying to do new research on old homework in your time-bound hour of need.
- Decide – cash-based or accrual-based accounting
Traditionally smaller or newer companies would use the cash based system to actually see where they financially stand that month. With bigger players and even mid-sized companies, the accrual-based method works better. Irrespective of what you choose, you need to ensure it is followed properly so that you use the logged in data to provide meaningful inferences and not to complicate things. For instance, in the accrual-based system, if you log a renter’s February payment in January because it was paid on the 31st of Jan, ensure you are consistently doing that for all other months as well. Don’t later log the March payment in March because it was paid on 02nd March instead of 28th February.
- Budgeting, forecasting and planning
On the first level of book-keeping, you need to track your money by recording it. On the second level you need to mine that data to budget for the year, forecast for the season, and plan, adjust and adapt accordingly. While there isn’t a definite formula for it, it is an important part of clever accounting practices. By studying yesterdays’ trends and comparing them to today, you will slowly begin to see the patterns or point out the possible risks that could affect future decisions. With the spikes and drops in the income, it is important to know the periods where your business seasonally does well or doesn’t, and plan to capitalise on the good periods and account for the lean months.
- Data accessibility
Data sharing and data accessibility not only make it easy to retrieve data but also keeps everyone on the same page. It isn’t just the accounting team that needs access to the accounts. In fact there are many more departments that rely on the accounting data to do their work. Having secure access to this data without having to interrupt your accountants for trifling information saves everyone the time, and also ensures the accountability of your accounting team to provide clean and updated reports.
In today’s day and age it might sound silly having to reiterate the ease and importance of digitizing the accounting department, but given the number of paper-based firms laboriously working through sheaves of files, we are going to point it out again! Apart from saving on paper, storage and human error, the biggest boon of digitizing is accessibility of data and the automation of tedious accounting processes. For instance, there are accounting software to help you specifically with budgeting. With software designed specifically for real estate accounting, it would be a crying shame not to make use of this technology!