One thing that holds companies back from their full potential in revenue growth and over all expansion is not understanding their financials and bookkeeping. After eighteen months of looking at a number of property management companies books here are the most common pitfalls that impact overall company performance.
- Technology is supposed to make work easier
- Bookkeeping should be a simple process that makes other parts of the business run more efficiently
- Stick to a bookkeeping routine
- Keeping accurate records in real time and making decisions based on that data is the best thing you can do for your business
1. Technology Is Supposed to Make Work Easy
If you’re spending a lot of money on software and it’s confusing...you’re doing it wrong. Take the time to learn the basics and then have the mentality that everything you learn will make work easier for you and your staff. Think of it this way; every time you use the software appropriately your labor costs go down.
2. Bookkeeping Should Be a Simple Process
Keep it simple, so often we see clients make it more complicated than it has to be.
Here is the entire bookkeeping process:
- Receive invoice
- Put invoice into the software (scan it and throw hard copy away, preferably)
- Remember that an invoice is a legal document with important information in it. Make sure this information is reflected in the software:
- Vendor name
- Terms
- Bill date - This is the date that the invoice was generated and helps you understand how long the vendor has been waiting for payment. It’s insightful
- Due date - This should be automated based on the terms
- Amount
- Invoice number - If this isn’t in your software then the vendor will be way more likely to apply the payment incorrectly. Think of this as a communications tool. It also makes it so you don’t have to send a hard copy of the invoice stub.
- Code - Enter the correct expense (chart of accounts) information
- The appropriate property (or department)
- Proper expense code (NARPM has a very good chart of accounts you should use in the property management industry)
- Pay it before it’s due
- You will input the bill/invoice into the system and then leave it there until it’s the day of the week you pay bills. (see routine below)
- Lots of people are hung up on trying to hold onto cash for as long as they can, but really...the cost of money is so low that it’s probably better to get a line of credit and pay vendors pretty close to immediately. Or, at least do that for strategic partners to keep them happy and build trust.
That is the entire procedure. All the other rigamarole of filing a copy of the invoice along with an envelope is so 1990’s. Just print the check and put it in a windowed envelope. How much money do you think you save using the invoice they sent you? C’mon peeps...have some respect for your time.
3. Stick to a Routine; Make Bookkeeping Boring Again
Having a routine solves other business issues. When you have a routine your team knows what you expect and once you have your process written down and you are managing by the numbers it cuts down on fire drills. Additionally your vendors never call you because they know when they will get paid. When you have an efficient system that runs like a clock you can focus on other things that move your business forward.
Here is a process that works:
- Every...single...workday: Input invoices to the system as soon as you open the mail. Don’t let them stack up...EVER.
- There is a proclivity for property managers to have “dead days” or something of the sort where they don’t touch the books. Put the bills in the system as soon as you receive them, without exception.
- Thursday: Approve the bills
- If a bill doesn’t look right, make the changes, do the follow up or don’t pay it until the next cycle after questions are answered.
- Each department head should have a cutoff time of, say, 2:00 on Thursday. After that time nothing can be guaranteed to be paid.
- Property managers should be approving the bills for their respective portfolios
- Friday: Send checks.
When you first roll out this disciplined approach, be ready. Everyone will ask you to make exceptions and pay a bill that they’d forgotten to put in the system. But do not make exceptions. Tell them to let the vendor know that the invoice will be paid late. The exception requests will plummet very, very quickly.
4. Your Business Decision Making Will Improve
Do I have money for extra marketing this month? Should we buy that key machine we have been putting off? Should I hire that business coach or EOS implementer? Are we going to meet our annual goal? If I sold my business now would I get my target price for it?
When your books are accurate in real time you can stop putting off big decisions, you can seize on opportunities and you can win. This is the difference between stagnation and thriving.
What Are the Real Life Gains of Good Bookkeeping and a Routine?
- Anyone who answers the phone can tell a vendor when they can expect the check, but...
- ...vendors stop calling because they know when they will be getting paid
- Bills are visible immediately in the software so questions about them can be answered by anyone with access to the software. If your bookkeeper is gone it is easy to have someone fill in because you know exactly where to go and what to do to pay people.
- Copies of the invoices are available to owners for them to look at if they want to in their owner portal. In other words, you don’t need to send backup financials to them anymore. *Obviously this requires decent property management software.
- Paying bills takes far less time
- You can see if you are profitable at any time in the month and course correct easily to meet your goals which makes work so much more fun.
Here’s the bottom line: it shouldn't take you more than an hour a week to send checks to vendors. If you streamline your operations you will spend more time on productive items, not finagling a centuries old process to more or less work in a way that makes you feel comfortable enough.
If you are a Rent Manager user we can help you with your bookkeeping needs. Please reach us today and stop living with books that are not accurate real time.
