Bookkeeping for Property Management: A Comprehensive Guide

Client Profile

Firm A has north of 100 years of collective experience in residential and commercial real estate development, investment and management services. Over the period they have developed 165 properties in 5 different cities of Eastern and Western US. Having investment proposals from top banks of western US with budget of more than 1 billion dollars.

Overview

Needs

Firm needs affordable management solution to streamline unmanaged accounting and maintenance activities arise due to decreased staffing in tough economic situation.

Challenges

Mismanagement of Inventory Warehouse

Firm is having In-House maintenance supply warehouse for all the properties to provide timely and quality products for maintenance. There was extremely limited work order management and maintenance staff work tracking. This increased the firm's repair expenses like HVAC repair, plumbing repair, and unit readiness expenses substantially. The lack of good Inventory management practices also develop unnecessary stock of items which leads to increased storage expenses and scrapping of long unused material.

Accuracy and Completeness of Bookkeeping/Financials

There was a lack in timely processing of seller and utility bills, because of which firm was paying unnecessary interest and penalties. Firm was losing grip in negotiating with merchants for competitive rates in spite of large business volume. Firm had not adopted any proper month end closing procedure for transparency of financials among business partners. Certainty of business partners was shaking and they had started raising doubts on accuracy of data processing and completeness of financials. Quality of processing data was not extremely impressive, because of limited load distribution among staff.

Bookkeeping Software Limitation

Firm was using software for bookkeeping and inventory management, which was having limitations while processing data entry. The capability of producing financial reports and digesting large volume of data was too extremely limited in the software. It was one reason that accounting staff was not able to produce timely output.

Solution

Changing Bookkeeping and Accounting Software

We have suggested change in accounting software to softwares like Intuit QuickBooks, Sage, and Thomson Reuters amongst others that is made utilization of by our firm. These bookkeeping, financial statements and advisory softwares that are electronic, has a bookkeeping and accounting module that is easy to utilize.

Expertise and Economical Staffing

We have provided affordable staffing model consisting 2 property bookkeepers and accountants and 1 financial analytics to meet initial requirement of firm. Property bookkeepers had the option to easily transmit data from previous accounting software to new one that they picked. They streamlined processing of data entry by establishing clear data input timelines. Their proactive role in asking for and following up on data with client's accounting staff played a critical role in the process.

Centralization of Data

Previously the software where the data was segregated and were entered in two different places-excel, old accounting software which wasn't up to the mark. This prompted avoidable delay and glitches. One of the first activities was to consolidate/centralize these disparate data sources into one single source.

Establishing Clear Operating Procedures

One of the key pain points for the senior management was haphazard and delayed month end closing in the pre-outsourcing set-up. This was arising because of several reasons, with the key ones being-overloading of finance controller in mundane accounting tasks, unorganized data storage, no very much laid out month end procedure and lack of clear deadlines. A lot of the process knowledge was tacit knowledge available just with the finance controller. The Financial analyst and the Team leader had extensive discussions with finance controller and the senior management to map their reporting requirements, document the tacit process knowledge and map the procedure and associated timelines. The closing process was further partitioned into AP, AR, and Bank and General Ledger sections.

Creating Management Dashboards

"A picture says more than 1000 words." Following this figure of speech, the financial analyst created visual dashboards representing key financial and operating information like vacancy %, collection factors, Rents collected, NOI, expense factor and critical ratios like DSCR, Debt to Equity etc. These reports were created at multiple levels-property level, entity level and even partner/investor level.

Enhancing Inventory and Work Order Management

After the above activities started yielding results, they then added another accountant for Inventory management, work order management and maintenance technician's time tracking. As earlier, the accountant started with creating procedures for tracking inbound and outbound inventory. He also diligently tracked work order statuses and updating/closing the work orders based on feedback from the field. The prompt creation of new work orders based on property manager's requests prompted fast resolution of tenant complaints. Tenant satisfaction has been increased after effectively implementing above measures resulting in significant reduction in unit's vacancy levels.

Also Read: Top 6 Ways For Efficient Real Estate Bookkeeping

Results

(1) Timely Monthly Financials with month shut by 6th of the month and final financials out by 8th. Client got words of appreciation from bankers and investors for timely accommodation of reports

(2) Management Dashboards improved the quality and clarity of financial information available with senior management and investors

(3) Established and documented accounting procedure with completely centralized processing, has made updated and accurate information available at all requisite levels

(4) 30% reduction in maintenance supply material and labor expenses through work order tracking, maintenance technician time tracking and other associated initiatives, resulting in dollar savings of more than $200,000 annually

(5) 40% savings in accounting costs after the first one year of complete utilization of accounting team