Don’t let real estate accounting curb your portfolio growth
Whether you’re a property manager, real estate developer, or investor, efficient accounting is crucial to your business. A well-run accounting team helps you make better, faster business decisions and allows you to integrate new acquisitions with fewer interruptions to your organization. But large and fluctuating real estate portfolios can challenge — and easily overwhelm — all but the most experienced accounting staff.
Real estate accounting is a specialized discipline, and without the right talent and systems in place inefficiencies quickly tug on the reins of business growth. Delays in account reconciliations can push back financial statement reporting, something that frustrates investors and can put debt covenants at risk. A lack of automated processes for collecting rent payments and other repeatable tasks contributes to operating in perpetual catch-up mode, and a lack of current, accurate reporting forces seat-of-the-pants, rather than strategic, decision-making.
By getting your arms around your company’s accounting function, you also strengthen your controls, which is key to reducing risk, including the risk of fraud.
If you want your business to grow sustainably, efficient accounting — basic back-office blocking and tackling — isn’t a luxury. For many real estate businesses, outsourced accounting offers a reliable, scalable solution.
Accounting software is only a start
Ah, but your business licenses industry-leading real estate accounting software, you say? Yes, and we’ve seen it too many times — a company purchases a license to Yardi or a similar platform but doesn’t have the internal expertise to get it set up and off the ground. These software packages are robust, highly specific, and powerful when configured properly, and their home in the cloud lets you automate many processes. But without the right talent, setup can go awry and without completion, crippling your ability to use it to its full potential.
Specialized real estate accounting software packages can take years to master, so finding qualified staff to run the accounting function for your organization today can be difficult. As a result, even with the right tools, you risk long-term ramifications on the quality of your data, financial reports, and controls.
Questions to ask about your accounting function
Even with access to good software, we often see accounting staff working from crisis to crisis. It’s a twofold challenge and a twofold solution: You need to ensure you have both the right tools in place, designed for the real estate industry, along with the right people to power the system.
Start by taking a good look at your people and processes. There may be a simpler way to manage your accounting function.
If you don’t have both, it may be time to consider outsourcing your accounting function. Taking a step back and looking holistically at your people and processes is a logical first step. Ask yourself these questions:
- Does your business have aggressive growth plans and goals? Is it currently in growth mode, adding properties at a rapid pace?
- Is recent expansion in your property portfolio putting pressure on current staff to meet the demands — with deadlines for routine accounting tasks, including reporting — moved to the back burner?
- Is there clarity around who’s responsible for particular accounting tasks?
- Are bank accounts reconciled regularly?
- Are you generating and sharing profits and losses with investors on a monthly basis, or is staff often behind? Investors, are you receiving the information you need consistently and on time?
- Is reporting automated, and generated within two to, maximum, three weeks after month-end?
- Does the business have automated systems in place for processes such as invoice and payment processing, cash receipts, CAM reconciliations, and management fee calculations? If not, why?
- Do you experience shifts in business activity that make it difficult (and expensive) to project and scale accounting staff to appropriate levels at any given time?
- Do you have trouble finding qualified staff, that is, with specialized real estate accounting expertise? Are you still using mass-market, off-the-shelf software because it’s so challenging to find (good) staff with knowledge of real estate accounting, who also are well-versed in the leading industry software packages?
Outsourced real estate accounting, improved controls
The questions above can elicit a realistic picture of your real estate accounting function, and the answers can help you determine the right time to think about outsourcing.
Outsourcing eliminates the need to recruit, hire, and train accounting staff with real estate industry knowledge and frees you to devote more attention to your core business. Outsourcing also removes the variability and unpredictability of trying to project overhead costs and lets you scale operations without having to scale back-office staff. It lets you set up new properties quickly and frees you from thinking about technology and software upgrades. It lessens the time needed to close the books and generate reports — developers, managers, and investors alike all have access to real-time management reports and financial statements. When you have decisions to make, you can be confident the data you’re looking at is both timely and accurate.
Outsourcing also removes the variability and unpredictability of trying to project overhead costs and lets you scale operations without having to scale back-office staff.
By getting your arms around your company’s accounting function, you also strengthen your controls, which is key to reducing risk, including the risk of fraud. Designated roles and automated processes mean fewer individuals cut checks and handle cash receipts. And, cash can be reconciled each month — one of the single most important controls in existence.
A future-state vision of accounting
It’s easy to fall into the trap of thinking that the systems you currently have in place and the management reports you use are as good as it gets. But that’s most often not the case. Outsourcing can bring expertise precisely where companies are challenged to find it. It’s hard to hire qualified accounting staff, let alone accounting staff with specialized real estate experience who also are proficient in Yardi and other industry-specific platforms.
Start by taking a good look at your people and processes. There may be a simpler way to manage your accounting function, gain confidence in your data when making decisions, and focus on what matters most to a successful business — planning for growth and seizing opportunity.