Accounting for real estate business is complex than any other business due to the number of transactions and clients. While dealing with income, expenses, and assets is overwhelming, accounting in property management can be challenging for accountants. No matter how well-organized you are, there are some common challenges you will face when dealing with the financials of your property. Just to be aware of the problems and come up with better solutions, we've listed ten accounting challenges in real estate management.
Top 10 Back Office Accounting Challenges for Your Real Estate Business
Accounting done right can improve your business's financial health, but a single error can cost you thousands of dollars, your clients, and you may end up dealing with legal procedures. So, take a look at the ten challenges here. If you're facing any, we'll tell you how to overcome it too.
1. Keeping the same account for both personal and business transactions
If you're a property owner managing a few units but now have many to handle, you must keep different accounts for your business and personal use. When both the expenses are in the same account, it becomes difficult to calculate costs and profits. Always try to keep two different accounts and a separate account for security deposits. Since security deposits need to be returned when tenants leave, it's always better to keep that in a different account for accurate calculations. It will help your business and reduce your accounting team's burden.
2. Incorrect calculation of costs
Classifying costs in a real estate business is of paramount importance. Even if you have everything in place, it can still go wrong due to the poor maintenance of the records. Segregate expenses, income, and profits to ensure there is no confusion in the end. A minor error can cost your business a lot, so always remember to categorize the costs appropriately.
3. Delay in Paying HOA bills
Paying Homeowners Association Fee is essential, and not doing so can lead to significant problems. You may end up spending large sums of money as a fine or land in court proceedings due to the delay. Never delay any payments if you want to be a successful property owner. Real estate management is complex; it takes a little organization of records and tracking to ensure everything is done on time.
4. Overpaying for services
Accounting in a real estate business is an arduous task, and to make it easier, you hire an accounting team. But what if the accounting team ends up making costly mistakes along the way? It can cost you double to make up for the error. So, get back-office accounting software for your business that can reduce human errors and increase efficiency, or if you already have one, upgrade to software with more features to make it easier for you.
5. Improper handling of accounts
In a property management business, money should be handled well for several reasons. One, to keep your clients happy, and two, for your business to run well without causing a problem. But even after knowing this, if you transfer money to the wrong account, it cannot be right for your business and your clients. And, since clients drive your business, it's something you might want to take care of. It will be a problem for your accounting team too. To avoid all this, have all the transactions maintained well for better results.
6. Delay in returning security deposits
If there's one thing you shouldn't do while managing a property business, it's to delay returning security deposits. Never delay returning deposits to your tenants, as doing so will make them lose trust in you, and you may end up losing potential tenants for your properties. Keeping all the deposits in the same account can get mixed up with your other expenses and cause confusion. So, never delay or keep security deposits in the same account. Try having a different account for security deposit transactions to make it easier for calculations.
7. Improper account reconciliation
Though account reconciliation is an exhaustive process, you need to get it done to ensure zero errors in the accounting process. If you skip this part, you will have to deal with consequences that shouldn't have been dealt with in the first place. A single accounting error can turn your property business upside down and make you lose your clients in a second. So, maintain all your financial records and reconcile your account routinely to avoid any mistakes. This way, your property business will thrive for years.
8. Keeping physical invoices
Having physical invoices and receipts will only make the job harder. Multiple invoices from vendors can often get mixed up or lost, which can reflect in your balance sheet. Ensure you have them all entered on your software, so there are no duplicate invoices or missing anything. Keeping paper invoices can be great, but you need to have a copy of it all on your system to know you don't miss anything while calculating.
9. No proper maintenance of records
Maintaining records is the most crucial accounting aspect in a real estate business. You will have to keep all your documents such as invoices, transactions, profits, assets, and other data in a single place to ensure calculations are done right. If you miss even a single piece of data or mix up old data, it can make your business sink. So, always manage and maintain the records well.
10. Adding copy of the invoice to the transactions
You may have duplicate invoices as a backup, but if you end up adding the copy under your transactions, it can be a mess. Ensure you make all the payments on time, and if the vendors do send multiple invoices due to delayed payments, maintain a system and clear all the payments in a monthly or quarterly cycle. It will ensure you don't have any pending payments and keep you organized. Maintenance of records is vital to keep your real estate business up and running smoothly at all times.
Speed Up your Accounting with a Back Office Accounting Software
Back office accounting season can be more stressful if you face the above challenges. However, with accounting software, all your expenses, assets, income, and profits can be calculated, managed, and maintained in a single place. We at Assetsoft provide accounting software services for your property business and if you think it's time you need one, give us a call, and we will get back to you in no time.