PM Accounting Guide
Choosing a Property Management Bookkeeping Solution for Your Business
Published on October 21, 2020
Choosing a Property Management Bookkeeping Solution for Your Business
By Monty Montgomery
There are many factors to consider in a property management bookkeeping service. At MontPac, we’re very proud of the services we provide, but we also realize that we’re not a perfect fit for every property management company. Other than clean-up projects, this can be a very long relationship (more than a decade for some of our clients); hopefully, this blog will help you decide what is important for you and guide you to the right choice.
You Have a Choice of Bookkeeping Services.
Quality, Customer Service, Internal Controls, Sophistication, Convenience, Cost, Continuity of Service, and Scalability. The various bookkeeping options available to PMs –– whether your company relies on an in-house employee, a local outside bookkeeper, an offshore individual, or a bookkeeping firm –– all have strengths and weaknesses across these traits. So naturally, some of these services will be more essential to your needs than others.
Always Start With Quality.
Quality is of critical importance. The most valuable time is your own and having to spend time solving problems related to poor bookkeeping is never a smart use of your time. Not to mention the stress and worrying about whether your books are right.
States may vary in their audit frequency and aggressiveness, but if your accounts are not properly reconciled, you will likely have a problem over time. And once you receive that Department of Real Estate envelope containing an audit letter, you’ll start kicking yourself for not addressing the quality of your bookkeeping when you first noticed some issues.
Unfortunately, the common industry-specific systems (Buildium, AppFolio, Yardi, PropertyWare, et.al.) are harder to use than QuickBooks. In addition, it’s easy for the trust accounts to only appear correct, further exposing you to audit issues. Remember that using the triple tie out method to confirm that your cash accounts are properly reconciled through your property management bookkeeping service is the minimal level of quality you should maintain.
How Good Is Your Customer Service?
On our first call, a potential client once told me, “I have two bookkeepers and I hate them both.” I laughed thinking he was kidding, or I thought I caught him on a bad day, but the point was made. He didn’t have a great experience working with his own staff.
Bookkeeping is an essential service, whether it’s performed by someone inside your company or outside. A professional, customer-centric service approach is not too much to ask for.
Think Inside The Box: Internal Controls.
In accounting, internal controls are systems to keep your books accurate and minimize errors. Basic internal control concepts like separation of duties, access to bank funds, and review by senior staff can have an impact on quality. More importantly, they can also help prevent embezzlement, which is a lot more common than you might think because it’s not always talked about, but it’s one of the worst things that a business owner can experience. Just having someone else complete the bank reconciliations can often have a big impact on your monthly books.
Complicated vs. Sophisticated.
Most bookkeeping activity is routine, but there are always complicated transactions that arise or issues that just need to be fixed. For that, you need a certain level of sophistication or access to it.
Your tax accountant is often the answer, but unless he, she, or your accounting firm is familiar with your software, which is unlikely unless they specialize in property management, they may not be able to help solve this dilemma concerning your property management bookkeeping.
How Convenient Is Your Bookkeeping System?
Convenience is a factor of varying importance to PMs. For example, how easy is it to communicate with your bookkeeper? Is he or she in the next town, the next state, or offshore? If offshore, can they speak with you, if you need them, on the phone, via text, or Zoom? Most questions can be handled by email, but maybe you don’t like email or it’s always easier to have a five-minute call than a two-hour string of increasingly frustrating emails.
How Much Does Your Bookkeeping Service Truly Cost?
Do you use an outside service, employees, or a combination of both. With a service, you pay a fixed or hourly rate, which is typically all in and easy to quantify. But with employees, you’ll have to consider your total cost, including salary, payroll taxes, worker’s compensation, benefits, vacation, sick leave, equipment (computer) facilities, overhead, etc.
Also think of all money you spend for training, management time, and costs related to turnover, because those can all add up to a substantial total. One hidden cost with salaried staff is lack of utilization. Do they have enough work throughout the month so that you aren’t paying them for idle time?
One final thought on cost, since this is an operating expense and savings will fall right to pre-tax net income: if you normally have a 10% pre-tax income and save $500 per month, that can be equivalent to $5,000 in fee income.
Don’t Forget Continuity of Service.
Continuity is something that you don’t always think about until it’s rudely thrust upon you. You can go a little while –– a month, maybe a few –– without doing your books, but eventually your owners will want their statements and they’ll want them to be right.
My father used to caution me about “a single point of failure”. Before starting MontPac, he was the CFO of three different Fortune 500 companies, so maybe the stakes were a little higher for him. But this should matter to you, too, in relation to property management bookkeeping continuity of service.
Replacing a bookkeeper who has to suddenly leave can leave a giant hole in your operation. Finding a replacement who knows your system or training someone on that particular system, assuming the person that left isn’t the only one who knew it, can burn a lot of time. Choosing a firm versus an individual can solve this issue. As long as you have consistency with the person or team you work with, having a back-up can be great. After all, life happens.
Finally, There’s Scalability.
This may not be a concern for your company. If the number of doors under management is steady, your existing bookkeeping solution will typically work just fine. But if you are in growth mode, consider the impact of the incremental doors under management. It’s always easier to add hours than whole staff members and it keeps the utilization in balance.
But what if you could acquire another company’s portfolio? Or what if you merged with a friendly competitor? This year, a client of ours acquired an additional 1,000 doors using a different accounting system and we were able to handle it without issue.
True, this is a rare example that probably doesn’t apply to you, but it shows an extreme example of scalability. Adding a couple of doors per month is more likely, but your system should be able to handle that at a minimum.
If It Works, Don’t Fix It. If It Doesn’t, Consider MontPac.
If things are going well in your Bookkeeping Department and it’s cost-effective, I don’t recommend making a change. Your solution doesn’t need to be all or nothing, either. Hybrid solutions can be the most effective in most situations.
For example, some clients have us only do their triple tie out bank reconciliations because they’re complicated, their internal bookkeeper may not have the time, and it’s a savvy internal control.
Please consider all of these factors when making a decision for your property management bookkeeping services vs. industry-specific systems such as AppFolio, Buildium and Yardi. Of course, we would love the opportunity to discuss our offshore bookkeeping and accounting services if things are not working out for you as intended.
