One small mistake can result in hours of extra work, lost money, serious legal trouble, or worse (like dealing with particularly displeased owners).
To help property managers get ahead of any issues, we interviewed our team of expert property accountants about the most costly, problematic mistakes, and how to avoid them with thorough property management accounting procedures.
Processing duplicate bills
A vendor sends a duplicate bill because they didn’t receive payment yet, or they forgot they already sent it in. They might even change the invoice date or invoice number, making it even easier to accidentally double-process payment.
To prevent duplicate bill processing, set up a workflow that has you cross-check the past three to four months of billing to make sure you didn’t already make payment for services delivered.
Making it a habit to check three to four months of billing history also helps you keep an eye on service provider rates and the cost of goods. If you notice that your vendors’ prices are trending upwards, perhaps it’s an opportunity to find lower-cost solutions.
Depositing money into the wrong cash account
You accidentally put a security deposit that should go into ESCROW into an operations or trust account. Not only does this create an issue with your property accounting software (we’re looking at you, Appfolio diagnostics), but if you put the wrong funds into a trust account, one of your owners might accidentally end up spending money that isn’t theirs to spend. Then! Once you finally figure out what happened and remove the accidentally deposited funds, suddenly your owner is in the negative. Not good.
If you make this mistake, work hard to get it resolved ASAP – if you act quickly, you can avoid bigger issues. But the most important solution is simply to be impeccable with your workflow by using strict property management accounting procedures. We do this by ensuring our accountants are well versed in all their property manager’s bank accounts, implementing multiple layers of review, and setting up strict internal controls so that everything gets appropriately cross-checked.
Building a foundation of strict procedures and controls will only help your business (Buildium has some great suggestions for best practices) Instead of scrambling to figure out where the breakdown in communication happened, you can rest easier knowing that there are multiple touchpoints in place to prevent mistakes from happening.
Not sending security deposits to renters in time
You miss the deadline for returning a security deposit and your tenant pulls you into unnecessary legal action. In some cases, you might end up paying 3x’s the security deposit if the tenant claims treble damages (this is when a state statute permits the court to triple the amount of the actual damages to be awarded to a plaintiff).
First, get crystal clear on the laws within your municipality, as they’re all different. For example, in Florida, the law states that you have 15 days to refund the security deposit if you are not making a claim, and 30 if you are. If you don’t follow that schedule, you’re liable.
Next, set up touchpoints within your move-out process to ensure you correctly track and process the status of security deposits.
If you’re a property manager and this happens on your watch, you’ll end up having to pay the bill yourself or the owner will get really upset. Honing in on this part of your accounting process will prevent this costly mistake from happening, and ensure that tenant relations remain positive even after move-out.
Problems processing 1099’s
You hired a contractor, paid over $600, but forgot to get a W9 form. Come tax season, you aren’t able to send them a 1099 which dangerously increases potential tax penalties. Or, maybe you try to file a 1099 electronically through your property accounting software without the proper coding, it fails, and you run into the same issue come tax time.
First, make a hard rule: anytime you pay more than $600 for services from a contractor, you need to receive a W9. This is yet another control process you can implement with your team.
When it comes to avoiding hiccups with electronic processing using your property software, you will need to apply for a Transmitter Control Code (TCC) on the IRS website. But plan ahead as this can take up to a month and a half to process.
If you don’t secure your TCC, then you’ll need to send your 1099’s through a third party, not your property software.
The good news about getting your TCC? Once you get it, if your tax ID doesn’t change, you can use the same code the following year. Plus, with a TCC, you won’t have to use third-party software or process 1099’s manually – you can just use the software you already have.
Coupled with the previous tip about implementing property management accounting procedures to cross-check the last 3-4 months of billing, we’ve found that strict processes like these are imperative for keeping our property manager’s books in tip-top shape.
Issues with HOA billing and payments
You forget to make your HOA payments on time, which turns into fines, which turns into liens, which turns into lawsuits.
Set up recurring bill payments to prevent this from happening.
Have a growth mindset! Setting up recurring bill payments is a great way to ensure your owner relationships stay healthy. The more reliable your payment schedule, the better they feel about entrusting you with more properties in the future.
Out of date unit counts
You planned to lease out one of your properties, but the owner decided to do some rehab work, and now those units are sitting vacant. Then, you forget to update your unit count with various service providers who charge by-unit and find yourself overpaying for services.
Make it a habit to double-check your active unit counts at the top of each month, and update any relevant service providers. For example, many property accounting platforms charge based on door-count, so if there are months when you have fewer units, make sure you take advantage of lower payments.
Frugality is a property manager’s best friend! We’re always looking out for ways to save property managers money. Adopting a detail-oriented mindset will help you do just that!
Overpaying for accounting services
Having an in-house accounting team is costing you tens of thousands of dollars every month in salaries, office space, overseeing employees, health insurance, liabilities, and more. Then there’s the issue of scalability; the costs associated with hiring and training new accountants have created a substantial deterrent to growing your door count.
Take a hard look at your bottom line and consider if you might benefit from seeking out a lower-cost solution, then start making calls.
In addition to saving on operational costs, hiring an outside team of expert property accountants will save you time, cut back on stress, and get you better positioned for growth.
For example: when property managers with over 150 units hire Proper, they cut their costs by an average of 30% and save around 25 hours of their time every month that they can spend on growth-related activities.
For less than the cost of in-house accounting, they get a team of expert property accountants who look for ways to save them money while also making improvements to the way they do business.
We love helping property managers grow. We’re here to provide exceptional services, lower your accounting costs, help you lookout for ways to save, and get you ready for growth.
Talk to us today! We’ll answer all your questions, learn about your goals, and then get you ready to reach them.