Property management accounting has a lots of in’s and out’s. So, it can be difficult to make sure the property management reporting is as effective as it can be. You are getting money from your vendors. Having to return security deposits to them. If you are managing for multiple property owners, then those owners are both vendors and customers as well.
In QuickBooks, this can be an issue. Traditionally, you can’t create a vendor that is also a customer. In these instances, you have to create two names for one company. That is just one example of all the nuances in reporting for property management accounting. I’m not going to spend time here on how to do the day to day accounting. Instead, I want to focus on the reporting that is used to manage these properties.
Setting Up the Foundation for Property Management Reporting
Setting up your accounting structure is one of the most important steps to get effective property management reporting. We recommend you start with listing all of the property addresses as customers. Each tenant that comes in can be listed as a sub customer under that property. For the owners, you have the option of just using the main property address for them or setting up an additional sub customer for them. If you go that route, I recommend you add (owner) to the name so you know.
Dealing with Non-Profit and Loss Transactions in Property Management Reporting
The next important setup is recording the security deposits on the properties. This will be a balance that is recorded on your balance sheet, so you’ll need to remember that you won’t find this number on the P&L. The security deposits should be held in a separate bank account and that amount should match back to your security deposit liability account.
When it is time to refund your security deposit, you need to make sure that any deductions to the deposit are recorded as revenue. That amount should also be transferred from your security deposit checking account to your main checking account.
How To Ensure Effective Property Management Reporting
But what about the reporting? Make sure to turn on the option to track expenses by customer. For every expense that comes in, you’ll want to properly tag the customer on each transaction. If this isn’t done correctly, then your reporting will effectively be useless.
At this point, you’ll be able to run P&L’s by customer. You can look at the high level of just the property or dig down and a report on the individual tenant.
Another report to have on hand is to show all transactions by customer over a certain period. This will give you the detail of transactions on the Balance Sheet as well as the P&L. This is where you’ll go to verify how much of your Security Deposit liability is for this tenant.
Using Property Management Reporting in Your Business
Now that you have the reporting, what are you going to do with it? You need an operational person to be in charge of these reports and ensuring that you are maintaining an appropriate profit level for each property. If the numbers aren’t coming in right, the operational person will need to track down what is going on and present options on how to make the property be more profitable.
The accounting team should be responsible with supporting the operations team by helping them to understand the reports when there are questions. Accounting can also help find further detail on transactions when needed. Remember, accounting is also focusing on the business as a whole, so it is better to delegate ownership of the results of certain properties to those that are managing those properties for you.
Accounting also shouldn’t be the sole division responsible for tagging transactions with the property or tenant. Most people don’t realize that the accounting department and reports are only as good as the information provided to them. Operations should take on the responsibility of making sure all documentation should have the proper property/tenant listed for tagging.
Operations should also make the decision as to what level you are going to track the expenses. For example, if you have short-term leases, does it make sense to take the time to split up utility bills to each tenant, or do you just take the transactions at the property/address level.
At the end of the day, you need to weigh the amount of time involved to get the detailed reporting versus the kinds of management decisions you need to be making. If I were on the operations side, I’d look at a property P&L to see how profitable that address is for me over time – both when it is rented and when it isn’t. Conversely, I would run a tenant P&L to see how profitable that agreement with the tenant was. I would be looking at the markup on rent, any maintenance issues for that tenant, special items for that tenant, etc.
Recap of Creating an Effective Property Management Reporting Process
As I’ve said before, there are a lot of moving parts when it comes to property management accounting. But, if you are looking for the reporting for property management accounting, you need to ensure a few things. 1. Accounting is provided the accurate property information on expenses and are tagged accurately in the accounting system. 2. Operations is reviewing and analyzing the property reports regularly for profitability or other issues. And 3. Operations and Accounting work as a team to train each other, talk through any issues, and work in a continuous improvement environment where everyone is working to improve the reporting in an effort to improve the business as a whole.