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June 30, 2020

At the end of each month, property accountants are tasked with the not-so-small job of closing the books. They roll up their sleeves, down a pot of coffee, and get to work creating final reports that detail all revenue, expenses, and income for the month.

When it comes to accounting for property management companies, closing the books involves a LOT of line items – from rent deposits to vendor payments, management fees to depreciation expenses – every small accounting action needs to be (you guessed it) accounted for.

So what happens if you don’t establish clear ongoing processes that set you up for success? Then come closing time, this beast of a task can get even more beastly.

Issues closing your books on time can have a massive negative impact on relationships with investors, and make it difficult for your property management company to get a clear picture of the health of their portfolio. Additionally, banks may have loan stipulations that require you to report monthly or quarterly, so you could end up facing unnecessary penalties, too. No bueno.

It’s also the kind of issue that only gets worse the longer it takes to be remedied.

To help support our property manager friends (that’s you!) with this very important process, we sat down with our expert property accountants to get the FULL scoop on how they manage to close the books on time – sparing no detail.

First, here are their top ten tips for closing your books on time:

  1. Record all transactions daily! Don’t let them pile up.
  2. Audit your general ledger accounts weekly.
  3. Audit tenant ledgers weekly.
  4. Reconcile AR, AP, and security deposits liability sub-ledgers weekly.
  5. Create a month-end checklist and stick to it.
  6. Create a monthly calendar with milestones and daily tasks.
  7. Look for more efficient ways to accomplish tasks. Where can you save time?
  8. Check for tasks being duplicated or transactions being touched several times.
  9. Utilize technology to lighten your load whenever possible.
  10. Keep a list of all recurring tasks and journal entries

That’s a great start. But wait – there’s more!

Those ten tips are enormously helpful for handling the accounting for property management companies, but they aren’t enough to set you up for success.

Next, let’s dig into the details with this full breakdown of ALL the tasks you need to complete for a timely month-end close.

Tasks For Successful Month-End Reporting

1. Record daily operational financial transaction

  • Post miscellaneous deposits
  • Record ACH or electronic payments
  • Pay and record all invoices paid by check
  • Post returned item

2. Reconcile:

  • AP sub-ledger to AP GL account weekly
  • AR sub-ledger to AR GL account weekly
  • Security deposit liability sub-ledger to security deposits GL account weekly
  • Bank accounts (monthly, or more frequently according to your needs)

3. Record and review:

  • Adjusting & Recurring journal entries
  • Depreciation expenses
  • Amortization expenses
  • Amortization of insurance expenses
  • Management fees (calculated correctly!)

4. Review revenue & expense accounts:

  • Look for outliers and trends
  • Explain any variance above a set materiality threshold (i.e. $500)
  • Make sure all utilities and monthly building expenses are
    recorded (i.e. pest control, landscape services, alarm monitoring)

5. Review balance sheet accounts:

  • Cash accounts (petty cash, operating cash, bank accounts)
  • Prepaid expenses
  • Unearned revenues
  • Fixed assets

6. Review tenant transactions:

  • Move-outs, including security deposit dispositions
  • Move-ins

7. Run preliminary financial statements:

  • Balance sheet
  • Profit and Loss statement
  • Cash flow statement

8. Send statements to management or a senior accountant to review and approve.

9. Close the period for the month and prevent any unauthorized changes.

Just a few small tasks, right? 😉

It all boils down to this: If you create a month-end task list and schedule (and stick to it!), and audit regularly, then your books should be good to go at the month-end close.

As your company grows, this important process will become more and more time-consuming and complex. Because of this, all too often, we see property managers having mixed feelings about growth.

They dream of their company growing bigger but worry about what will happen if those dreams actually come true. Can they keep up with the operational changes that will need to take place, especially when it comes to their accounting processes? Will they need to hire another staff member to take on the new units? If so, will that cancel out their potential new profits?

If this sounds like you, let’s talk! We specialize in making portfolio growth dreams come true by providing a team of expert accountants who are ready to scale whenever you are. Our customers also save an average of 30% compared to their previous accounting solutions, so your dreams of growth may not be that far away after all.

But no matter where you’re at on your growth journey, establishing clear processes and task schedules will only make your life easier when doing accounting for property management companies. So go ahead, steal that task list for yourself! Copy and paste it and customize it to your business, or compare it with your existing processes.

Closing your books may indeed be a beast – no matter your unit count – but with a little structure, process, and practice, it’s a beast that can be tamed!

For more property management accounting tips, check out another helpful blog, Accounting Mistakes Property Managers Can Avoid Making.