Controllership
for Property Management Companies |
Accounting Presentation to the Northern Virginia Chapter of the National Association of Residential Property Managers (NOVA NARPM), January 10, 2018.
Click here for presentation outline with hyperlinks. |
The monthly statements and payments you send to your landlord clients depend "udderly" on the accuracy of your accounting! If it's wrong, your "Cash Cows" could become Cash Catastrophes. That's a lot of spilled milk!
Property managers are too busy managing properties to be expected to be accounting experts. A stitch in time saves nine. Lighten their load, and give everyone - them, you, your clients, colleagues, tenants, family, and friends - the peace of mind they need and deserve by hiring Making End$ Meet to provide CFO-to-Go Controllership oversight and support.
Property managers are too busy managing properties to be expected to be accounting experts. A stitch in time saves nine. Lighten their load, and give everyone - them, you, your clients, colleagues, tenants, family, and friends - the peace of mind they need and deserve by hiring Making End$ Meet to provide CFO-to-Go Controllership oversight and support.
Observations of the Property Management Industry:
Don't let this happen to you. Enjoy these success traits by getting controllership help from Making End$ Meet.
Contact Economist Kris Freeberg at (360) 224-4322 or [email protected]
- Size. Conservatively, it's a $74B industry (as of 2016).
- Licensure is real estate-centric. That is, owning a PM company commonly requires having a real estate broker's license.
- Managing a PM company is accounting-intensive. A PM is responsible for maintaining one set of balance sheets and income statements for every landlord-client.
- Licensure is not accounting-centric. Owning a PM company involves no accounting-related qualifications of either competence or training. Consequently, typical PMs suffer the dilemma of being unprepared to do their job.
- PM accounting is complex because it's Trust Accounting. It involves keeping two legitimate sets of books: one for the company's interests, and another for the company's landlord-clients' interests.
- The Accounting Profession's Attitude. PMs seeking accounting help commonly find that accounting firms are only interested in helping with one set of books - the PM company's - because they're most comfortable helping people account for and manage their own money, not others'. A common attitude in the accounting profession is that PM Trust Accounting is a kind of Twilight Zone that they'd rather not touch.
- Alone. Consequently, since both the PM Industry and the Accounting Profession are not helping PMs gain the competence they need to be successful, well-meaning PMs are left alone, suffering through their dilemma in silence.
- Reconciliations. PM management platforms are designed to do bank reconciliations from within the platform. Their design presupposes no omissions.
- Dealing With Omissions. Yet in a busy operation, what are the odds omissions will occur? 100%. If there are omissions, there's nothing in the system to "check off." You can't check off what isn't there. The solution is an outside-the-box reconciliation.
- Dilemma: Owner Statements & Bank Reconciliations. PM companies bear a pressure to sustain Ending Balance - Beginning Balance continuity on Owner Statements, in the same way that it works on bank statements. But PM companies aren't banks; and whereas a bank statement represents a bank's liability to its depositors, a PM company statement represents Owners' share of total cash that the PM company manages. For a PM company to keep cash reconciled with the bank, it's necessary to record retrospective corrections and adjustments arising from bank reconciliations. However, if those corrections and adjustments are recorded retrospectively, they threaten to disrupt Ending Balance - Beginning Balance continuity that owners expect on their statements. Consequently, pressured to please owners, sustain their trust, and seem "bank-like", PM companies feel compelled to record corrections and adjustments after the fact, much later - months later - than the real transaction actually occurred. This creates the appearance of continuity on Owner Statements, but confounds the bank reconciliation process, making it nearly impossible.
- "The Real World." Consequently, large bank-book discrepancies arising from chronically un-reconciled accounts are so rampant that the expression "in the real world" has become commonplace industry jargon, indicating a tacit consensus that the figures in the accounting system aren't real.
- Vulnerability to Omissions. When accounts are not reconciled, the likelihood of omissions - the tendency to pay landlord expenses and fail to record them and charge landlords for them, thereby overpaying them - is great.
- Security Deposits. There's a lot of angst in the industry about Security Deposits because they're other people's money and can be a point of contention with Tenants on move-out. Unfortunately, software vendors have made Security Deposit accounting complicated, processing transactions in a way that makes account reconciliation difficult, giving higher priority to an easy User Interface for data entry purposes than to ease of reconciliation. Consequently book-bank discrepancies can arise, requiring careful professional expertise to resolve.
- Software Vendors. Competition among Property Management Software providers is fierce. They vie continually with one another about which one is "best." Yet under the hood, what they all share in common is a Ledger. Whose Ledger? The landlords'.
- Penny-Wise. The sound and fury about which platform is "best" is penny wise and pound foolish. The difference in cost between platforms amounts to a few hundred or a few thousand dollars per year at most, while their differences in features is negligible insofar as under the hood they all contain a Landlord Ledger.
- Pound-Foolish. Regardless of platform, the annual difference in whether it's used intelligently is in the hundreds of thousands or millions, depending on how many units are being managed.
- Intelligent Management. If a PM company is not being managed intelligently, growth presents a liability: a miserable, more-money-more-problems train wreck that can result in disaster with angry landlords, angry tenants, disgruntled employees, high turnover, litigation, and loss of fortune, health . . . even life. If it's managed intelligently, growth is a pleasant journey to prosperity.
- Automation & Mastery. Things like diligent income and equity recognition and to-the-penny bank reconciliations can not be automated. Income recognition depends on human initiative, interaction, and agreement. Reconciliation depends not just on noticing what IS there, but more importantly on noticing what ISN'T. Computer automation, no matter how good, can not notice what is not there. It's about facilitating comparisons. But if there is nothing to compare, the technology is futile. Masterful expertise is essential.
- Weak Boundaries. Because PMs are so close to the situation, working so often with both Tenants and Landlords, a tendency arises to lose sight of the forest for the trees and lapse into the attitude that "we're all in this together", overlooking whose equity is whose.
- Err in Whose Favor? Consequently, since the Ledger measures Landlord equity, whenever confusion or uncertainty arises, the tendency is to err in the Landlords' favor or, in the case of refunding Security Deposits, the Tenants'.
- Co-mingling Equity. This tendency is exacerbated by the fact that software providers train their users to "wash" their own income through the Landlords' ledger, thereby co-mingling equity. If there is ever distraction, disruption, turnover, confusion, or overwhelm (what are the odds?), the default error is that the landlords mistakenly receive that income, the PM company is underpaid, and the situation becomes unsustainable.
Don't let this happen to you. Enjoy these success traits by getting controllership help from Making End$ Meet.
Contact Economist Kris Freeberg at (360) 224-4322 or [email protected]