How to Set Up Your Property Management Company Accounting System
As a property manager, you know that keeping your finances organized is crucial for success.
However, setting up an accounting system for your property management company can be a daunting task.
How can you ensure that your finances are accurate and up-to-date?
In this article, we'll explore some practical tips and strategies for setting up your property management company's accounting system for increased efficiency and accuracy.
Part I: Understanding Your Financial Needs
Before you can set up an effective accounting system for your property management company, you need to understand your financial needs.
This involves assessing your current financial system, identifying key financial reports, and determining your chart of accounts.
1. Assessing Your Current Financial System
The first step in understanding your financial needs is to assess your current financial system.
This means taking a close look at how you currently manage your finances, including how you track income and expenses, how you handle rent payments, and how you reconcile bank statements.
To assess your current financial system, start by gathering all of your financial records, including bank statements, income statements, balance sheets, and tax returns.
Review each document carefully and make note of any areas where your current system may be falling short.
For example, you may find that you're not consistently tracking expenses, or that you're missing key financial data.
Once you've identified areas for improvement, you can begin to develop a plan for addressing them.
This might involve implementing new processes for tracking expenses, improving rent payment collection, or using accounting software to automate certain tasks.
2. Identifying Key Financial Reports
Another important aspect of understanding your financial needs is identifying key financial reports.
These reports will help you track the health of your business and make informed decisions about how to grow and manage your company.
Some of the key financial reports that you should be familiar with include:
- Income statement: This report shows your company's revenue and expenses over a specific period of time.
- Balance sheet: This report provides a snapshot of your company's financial position, including assets, liabilities, and equity.
- Cash flow statement: This report shows how much cash your company has on hand, as well as how much is coming in and going out.
- Accounts receivable aging report: This report shows how much money your company is owed, and how long those debts have been outstanding.
By understanding these key financial reports, you can better track the financial health of your company and make informed decisions about how to grow and manage your business.
3. Determining Your Chart of Accounts
The final step in understanding your financial needs is determining your chart of accounts.
Your chart of accounts is a list of all the accounts you use to track your company's financial transactions.
When creating your chart of accounts, it's important to keep things organized and consistent.
Make sure that each account is clearly labeled and that all transactions are properly categorized.
This will make it easier to track your finances and generate accurate financial reports.
Some common accounts that you might include in your chart of accounts include:
- Income accounts: These accounts track all of the income your company earns.
- Expense accounts: These accounts track all of the expenses your company incurs.
- Asset accounts: These accounts track all of the assets your company owns, such as property or equipment.
- Liability accounts: These accounts track all of the debts your company owes, such as loans or unpaid bills.
By determining your chart of accounts, you can ensure that your financial transactions are properly categorized and organized, which will make it easier to manage your finances and generate accurate financial reports.
Understanding your financial needs is a critical first step in setting up an effective accounting system for your property management company.
This involves assessing your current financial system, identifying key financial reports, and determining your chart of accounts.
By taking the time to understand these key aspects of your finances, you can set your business up for success and ensure that your accounting system is accurate and effective.
Part II: Selecting the Right Accounting Software
Choosing the right accounting software is a critical step in setting up your property management company's accounting system.
The right software can help you streamline your financial processes, keep track of important financial data, and make informed business decisions.
1. Evaluating Your Software Options
Before selecting your accounting software, it is important to evaluate your options.
Consider your business needs and financial goals to determine which software will work best for you. Some things to consider when evaluating software options include:
- Cost: Consider the cost of the software and whether it fits within your budget. Keep in mind that some software may require additional fees for support or updates.
- Features: Look for software that offers the features you need, such as accounts receivable and accounts payable management, invoicing, and financial reporting.
- Ease of use: Choose software that is user-friendly and easy to navigate. Consider how much time and effort will be required to learn and use the software.
- Integration: If you are already using other software tools in your business, look for accounting software that can integrate with those tools. This can help streamline your processes and eliminate manual data entry.
- Support: Evaluate the level of support offered by the software provider. Make sure you have access to technical support when you need it.
2. Choosing the Best Software for Your Needs
After evaluating your options, choose the accounting software that best fits your needs.
Some popular accounting software options for property management companies include QuickBooks, Xero, and DoorLoop.
QuickBooks is a widely used accounting software that offers a range of features, including invoicing, financial reporting, and payroll management.
It also offers an online version that can be accessed from anywhere with an internet connection.
Xero is another popular accounting software option that offers a user-friendly interface and a range of features, including invoicing, bill payment, and financial reporting.
It also offers integrations with other software tools, such as Stripe and Square.
DoorLoop is another option and one which integrates a full suite of property management features, instead of just accounting.
As opposed to strictly accounting software, DoorLoop's property management software gives you tools for managing your full suite of accounting that allows you to integrate your entire operation.
It gives you accounting features such as:
- Online rent collection
- Full chart of accounts
- Robust reporting tools
- Invoice and pay contractors
- Bank reconciliation
- And more
Plus, you get property management features such as:
- Maintenance management
- Tenant communication tools
- Tenant portal
- Leasing tools
- Tenant screening
- Complete CRM
- Owner portal and reports
- And much more
What software you choose is up to you, but know that it can and will either inhibit or multiply your efforts as it will be the primary tool you use each and every day to manage your client's properties.
3. Setting Up Your Software for Optimal Performance
Once you have selected your accounting software, it is important to set it up for optimal performance.
This includes entering your chart of accounts, setting up bank accounts, and entering opening balances.
Your chart of accounts is a list of all the accounts you use to track your financial transactions.
It is important to set up your chart of accounts correctly to ensure accurate financial reporting.
Make sure to include accounts for all of your income and expenses, such as rent, maintenance, and repairs.
Setting up your bank accounts in your accounting software will allow you to reconcile your accounts and ensure that your financial records match your bank statements. This will help identify any discrepancies or errors.
Entering opening balances refers to entering the financial data from your previous accounting system into your new software.
This is an important step to ensure accurate financial reporting and should be done carefully to avoid errors.
In conclusion, selecting the right accounting software is a critical step in setting up your property management company's accounting system.
Take the time to evaluate your options, choose the best software for your needs, and set it up for optimal performance.
This will help you streamline your financial processes and make informed business decisions.
Part III: Implementing Best Practices for Financial Management
As a property management company, financial management is one of the most critical aspects of your business.
To ensure that you are operating efficiently and effectively, it's important to establish best practices for financial management.
Here are some steps you can take to manage your finances more effectively.
1. Establishing Financial Controls
One of the essential steps in managing your finances is establishing financial controls.
This involves creating a system of checks and balances to ensure that all financial transactions are accurate and accounted for.
Establishing financial controls can help prevent fraud, errors, and other financial problems that could affect your business's financial health.
To establish financial controls, you need to implement the following measures:
- Separation of Duties: Ensure that different individuals are responsible for different financial tasks, such as invoicing, paying bills, and reconciling bank accounts. This ensures that no one person has complete control over the financial management process.
- Regular Financial Reporting: Implement regular financial reporting, such as monthly or quarterly financial statements, to monitor your business's financial performance.
- Use Accounting Software: Using accounting software can help you track financial transactions and produce accurate financial statements.
2. Maintaining Accurate and Up-to-Date Records
Maintaining accurate and up-to-date financial records is critical for effective financial management.
Having an organized record-keeping system ensures that you can quickly access financial data and make informed business decisions.
To maintain accurate and up-to-date financial records, you need to implement the following measures:
- Establish Record-Keeping Procedures: Establish procedures for record-keeping, including how and where to store financial records.
- Regularly Update Records: Ensure that you regularly update financial records, including bank statements, invoices, receipts, and other financial documents.
- Perform Regular Reconciliations: Reconcile bank statements and other financial statements regularly to ensure that all transactions are accounted for.
3. Automating Processes Where Possible
Automating financial processes can help reduce the time and effort required to manage finances.
Automating financial processes also helps reduce the likelihood of errors and ensures that financial data is accurate.
To automate financial processes, you need to implement the following measures:
- Use Accounting Software: Using accounting software automates many financial processes, including invoicing, bill payments, and bank reconciliations.
- Implement Online Payments: Implementing online payments reduces the time and effort required to collect and process payments.
- Use Cloud Storage: Storing financial data on the cloud ensures that financial data is accessible from anywhere and is securely backed up.
4. Hiring Professional Help When Needed
Sometimes, managing finances can be complicated, and you may need professional help to manage your finances effectively.
Hiring an accountant or bookkeeper can help ensure that your financial records are accurate, up-to-date, and compliant with relevant laws and regulations.
When hiring professional help, you need to ensure that you:
- Choose a Qualified Professional: Ensure that the professional you hire is qualified and experienced in property management accounting.
- Establish Clear Expectations: Establish clear expectations and responsibilities for the professional you hire.
- Regularly Review Financial Reports: Regularly review financial reports prepared by the professional you hire to ensure that your business's financial performance is on track.
Implementing these best practices for financial management can help you manage your property management company's finances effectively.
By following the steps we outlined in this section, you can ensure that your business's finances are in good hands.
Streamline Your Property Management Company's Accounting System
In conclusion, setting up an accounting system for your property management company can seem overwhelming, but it's essential for success.
By following what we talked about you can streamline your accounting system for increased efficiency and accuracy.
Remember to assess your current financial system, identify key financial reports, and determine your chart of accounts.
Then, evaluate your software options, choose the best software for your needs, and set it up for optimal performance.
Finally, establish financial controls, maintain accurate records, automate processes where possible, and hire professional help when needed.
With these tips and strategies, you can get your property management company's accounting system in order and achieve greater financial success.