Additional Tips for Staying Compliant with Your Property Accounting
Property management companies oversee various aspects of rental properties, including maintenance, tenant screening, and rent collection.
A crucial aspect of property management is accounting compliance, which means ensuring that all financial transactions are accurate and in accordance with relevant laws and regulations.
In this article, we will discuss additional tips and strategies for property management accounting compliance to help you stay compliant.
Know the Laws and Regulations
Compliance with laws and regulations is critical for any property management company.
Staying up-to-date with relevant regulations can help you avoid legal issues and penalties.
Some regulations that you must comply with include:
- Fair Housing Act: prohibits discrimination against tenants based on race, religion, sex, or nationality
- Landlord-Tenant Law: covers the rights and obligations of both landlords and tenants
- Federal and State Tax Laws: property management companies must file tax returns and comply with tax laws
- Financial Accounting Standards Board (FASB) guidelines: help ensure that financial statements accurately reflect a property management company's financial position
Consulting with a lawyer or accountant who is familiar with property accounting practices can help you stay compliant with these regulations.
In addition, always keep in mind that laws are always changing, so this is a continuous task.
Maintain Accurate Financial Records
Maintaining accurate financial records is also very important for property management accounting compliance.
Always keep track of all financial transactions, including rent payments, security deposits, and expenses related to maintenance, repairs, and improvements. Keeping these records will help you stay protected in case any legal discrepancies occur.
Organizing financial records is also key. By creating a chart of accounts that separates income and expenses into categories such as rent income, maintenance expenses, and property taxes, you can upscale your rental property accounting.
Another tip that to help you in the record retention aspect is to use property management accounting software to automate everything.
DoorLoop is an amazing option when it comes to price and features, but if you'd like to explore more options, you can read all about property management software here.
Finally, you should regularly reconcile bank accounts to ensure all transactions are accounted for.
Separate Business and Personal Finances
It is important for you to keep business and personal finances separate.
By separating finances, you can avoid legal and tax issues and maintain accurate financial records.
Here are some of our best tips for separating business and personal finances:
- Open a business checking account specifically for property management finances.
- Use separate credit cards and bank accounts for business and personal expenses.
- Create a separate account for each rental property managed to track income and expenses.
Monitor Cash Flow
Property management companies must monitor cash flow to ensure that they have enough funds to cover expenses and make timely payments.
In this section, we'll give some tips for monitoring rental cash flow.
First, you should track all rental income and expenses to create a rental property cash flow statement. This will upscale your property management bookkeeping and make your owners very happy.
Finally, regularly review financial reports to identify areas where expenses can be reduced.
Reviewing financial reports will not only help you maintain accurate records, but will also show your clients that you are proactive, which creates a trusting relationship.
Implement Internal Controls
Implementing internal controls can help you prevent fraud and ensure accounting compliance.
To ensure this, you can use a property management accounting system that requires multiple people to approve financial transactions and conduct regular audits to ensure that internal controls are effective.
Prepare for Audits
Preparing for audits can also help you ensure compliance with relevant laws and regulations.
Here are some tips to remember when preparing for audits:
- Keep accurate financial records and documentation of all transactions.
- Hire a professional auditor to conduct an independent review of financial statements.
- Create an audit committee to oversee and manage the audit process.
Property accounting is a key part of real estate investing and property management more specifically, not just for maintaining accurate financial records but avoiding legal and tax issues.
By implementing the tips and strategies discussed in this guide and throughout DoorLoop's Property Accounting Hub, you're leveling up your skills as a landlord in a way that will have a noticeable impact on the success of your portfolio.
Ready to put these tips to work?
Make sure to schedule a free demo of DoorLoop for a simple and straightforward path to getting your accounting up and running quickly with as little time and hassle as possible.