Accounting is the gathering, recording, organizing, and analyzing of the financial data which pertains to a business. Not only is it necessary for purposes of reporting and filing taxes, it’s also an invaluable tool when it comes to understanding the overall health and sustainability of a company. Without accounting decision makers can’t see the direction that a business is headed.
Property management poses a unique set of challenges in terms of keeping good and accurate books. Every property management company has a different portfolio and a structure that is their own. Various properties at different locations that can be grouped into any number of companies make it difficult to track income and expenses in a way that reflects the business structure.
Keeping clear accounting records for a property management firm can seem like a daunting task. With so much going on it’s easy for things to get messy and overwhelming. Analyze the accounting practices of your business. Can your company benefit from easy solutions that can simplify your books?
Perhaps it’s not surprising that property management companies tend to stumble into certain accounting pitfalls. Understanding the common accounting errors that property management firms are susceptible to is the first step in avoiding and correcting them. Is your company making these mistakes?
1. Using the Wrong Accounting Software
It’s difficult for property management companies to keep their books straight when they’re not using accounting software that’s designed for their needs. Trying to make do with generic accounting software will force your company to look for workarounds that will increase the workload and create a mess. Making things complicated and unclear increases the odds of errors which cause more work and an even bigger mess on the books.
Managing a portfolio of properties poses unique accounting challenges that generic software isn’t equipped to handle. You can simplify your accounting by using software that’s designed for property management. Look for a solution that can handle your unique set of books with the ability to adapt and fit your company.
2. Missing Out on Automation
Data entry can be a tedious and time consuming task. Overwhelming amounts of data that need to be input manually vastly increase the odds that mistakes will be made. The human eye tends to go blind to errors when it has to process mind boggling amounts of data.
People are susceptible to making mistakes but programing follows a laid out set of rules every time without fail. If your accounting software can automate recurring transactions, you can reduce the amount of time your staff has to spend on data entry. This simple tool has the potential to save a lot of time while increasing the accuracy of your records.
3. Relying on Paper
Without digitization accounting can get very paper intensive. Clutter and disorganization lead to lost documents, missed notes, and errors that will unbalance your books. Paper records need to be filed and kept in an accessible location where they can be pulled and re-filed as needed.
The solution to these problems is simple. Paper files can easily be converted into digital ones so that they can be viewed, used, and stored on a server. Digitize documents to keep the office neat and clean while making all your files easy to find and accessible to everyone who needs them.
4. Lack of Sufficient Data Backup
It’s an unpredictable world and sometimes things happen that are beyond our control. Paperwork can easily be damaged by fire or water and can be removed from the premises and become lost. The equipment that holds your information can be damaged too or simply fail. Data can become corrupted and inaccessible putting your accounting information at risk.
Having a system in place to backup all of your data on a regular basis is a critical component of accounting. If you can remember to make a copy of your data every day, you can keep your information safe with a physical device such as an external hard drive or backup disk. Or keep it simple and automate your backup as a scheduled task which sends your data to a cloud.
5. Avoiding Account Reconciliation
The goal of accounting is to keep accurate records that are free from errors. Tools such as the right accounting software, automation, and keeping digitized records can help avoid mistakes but nothing can eliminate them completely. That’s why it’s important to reconcile accounts on a regular basis.
It’s a good practice to reconcile your books at the end of each month, but at the very least you should reconcile quarterly. Go over your line items carefully checking for errors and omissions. Check your subsidiary ledgers and ensure that they match your accounts payable, accounts receivable, and general ledgers.
6. Lack of Internal Audits
Something about the word audit makes people run the other way, but periodic internal audits are an essential part of good accounting. Conducting an audit tracks the workflow and helps identify areas in need of improvement. Every company should perform an internal audit at least once every few years.
Internal audits create an environment of enhanced accountability for employees as well as for the company. They add a layer of transparency and demonstrate a willingness to take responsibility. Conducting self initiated audits facilitate the implementation of best practices and prepare your business for the real thing.
Don’t underestimate the importance of good accounting practices. Without clear data you can’t track your company’s finances and understand how the money flows. If you don’t know where the money comes from and where it goes you’re missing out on opportunities and allowing oversight to have a negative impact on your bottom line.
Overwhelmed by the accounting aspect of your business? Keeping good records for a property management firm is possible and doesn’t have to be a daunting task. If you understand the business, keep an eye out for common errors, and use the proper tools, your company can have organized books and accurate accounting.