In part two of the Efficiency series, I am going to discuss rent payments; specifically the most efficient way to receive payments that can “kill two birds with one stone” for your rental business. First let’s discuss the most common ways rent is paid. Cash – This method is a bit antiquated but still acceptable. Lends itself to being spent before being deposited into the rental checking account and understates the income received. Aside from that, proper handling isn’t always completed. When receiving cash payments for rent, AMH recommends that a receipt, signed by the property manager or landlord, be given to the tenant, that the payment gets recorded into the accounting system, and a deposit slip is immediately made for that payment listing the address and tenant the payment came from. Multiple cash payments can go on one deposit slip. Check – Another acceptable and somewhat antiquated method of payment. There are benefits for the tenant in being able to pay rent via check not for the landlord or property manager. For tenants, particularly if they are using a checkbook with the carbon copy feature, have written proof that a check was written for their rent. For the landlord
Depending upon your entity type and industry for your business, setting up the books for bookkeeping can be quite simple. For the purpose of this post I am going to discuss the two setups I am most familiar with. The first is based upon the IRS Form Schedule C. Page one of the form handles the income and expenses of your business to arrive and the profit and loss. The business expense categories listed are all that is needed in your accounting systems’ Chart of Accounts. Having this form handy keeps the Chart of Accounts clean and streamlined. You can always add sub-accounts for the things you want broken down for reports to be used internally. Another form I like to use as a reference is the IRS Form Schedule E. I love this form because my specialty is rental property accounting and it helps keep my clients Chart of Accounts clean as well. Page one of this particular form deals with the income from rent or royalties and the other page deals with other kinds of passive income such as income from Partnerships or S Corps. For this purpose, only the rents concern us. When you have property that you allow
Now that we have classes, tenants, and owners all set up, it is time to talk how these three things will flow together. The workflow for property management does not have to be daunting. The goal is to make it simple, easy to follow, and repeatable. Let’s dive right in! Step 1: Assessing Rent Charges to Tenants Statement charges are a great way to assess the charge for rent. It is a register for each tenant that shows all the transactions that involve that tenant. The process for assessing a rent charge this way is very simple. Open the tenant register and input the charge for rent. Step 2: Collecting Rent from Tenants Next, process the payment from that tenant. You can right click on the tenant name and choose receive payment. Here, it is imperative to make sure you have the right account listed that you want the payment to post to. If you do not have a main account where all tenant payments are kept, please pay attention to this. It will save a lot of headache in the long run. Step 3: Paying Owners Enter what you owe the owners as a bill minus your property management
As many of us know, there are several schools of thought on the best processes for any business when using QuickBooks. Property Management is no different. In this series you have learned about using classes and the best practices for setting up a class as well as how to set up your tenants. Like these two sections, setting up owners also comes in several methods. The method I practice is to use the Vendor Center in QuickBooks. Why setup an owner as a vendor when they are your customer? The reason for this is simply because getting their rents to them is a liability to the property management firm just as a bill for utilities is. It also makes your workflow smoother. We will get more into workflows under this method of property management in a later post for now let’s continue discussing setting up owners. There are two ways that owners can be listed as vendors. One way is to use the “address first owner name” method that is similar to setting up a tenant. This way works well for owners with only one property. The other is using the owner name for those with multiple properties. Using the
To continue on from our previous post, QuickBooks is an excellent tool for property management. In this post, I am going to cover Tenants and how to treat them in QuickBooks in a way that is easy for anyone to understand. My recommendation is to set each tenant up as a customer. Inputting an abbreviated version of the street address along with the tenant’s last name will help keep identical records separate and sorts the list by address; making it easier to locate a property. Once a tenant has moved and their record has been reconciled (move out process complete and security deposit returned) that tenant simply becomes inactive, and a vacancy is entered using the same format stated above. For example: Tenant is Bob Hall. Address is 1455 Main Ave. This tenant would be setup like this: 1455Main<Hall>. A vacancy after the tenant has moved out would look like this: 1455Main<Vacant>. Using this method comes in handy when you have multiple properties by the same owner and then multiple tenants in that property. This method also makes it much easier to determine the number of vacancies an owner has at any given time as they will be listed along
Property Management is a unique sector of business and the bookkeeping for it is as well. One of the best ways to manage the books for a Property Management Firm or individual landlord is to use the Classes feature in QuickBooks. Classes is a feature that can give further detail on a business’ financial information. There are several ways that a Property Management Firm can use Classes: Owners As Classes Property As Classes Separate Business Entities as Classes The best practice in choosing which way to use Classes is to determine what type of information you want to track. For a property management firm this means tracking income and expenses for each owners’ property. Setting the owner as a class is the best way to tie the income and expenses to each property; especially if an owner has more than one property. If this is the case, each property held by the same owner can be entered as a subclass of that owner. Utilizing Classes this way makes tax preparation faster and simpler. The IRS requires all income and expenses on rental property to be separated by location on the Schedule E. Whether you use QuickBooks Online or QuickBooks Desktop,
Maintenance requests. YIKES! For most landlords and property managers this can be a MAJOR headache. Establishing a smooth, easy to follow process from the beginning can fulfill a request with ease! Once a maintenance request is received, the landlord or property manager completes a Work Order. There are many steps but like all things, repetition is key to automating this process. The first step in this process is when the Tenant issues a maintenance request. Depending on how you manage your properties (self-managed or property management firm), the response to this will vary a little bit. For the post we will outline if from the property management firm view. More often than not, PM firms have a maintenance team on staff that is ready to answer these requests in a timely manner. Others do not and may have to call upon another company to help. In either situation, a well-defined process will ensure a smoother journey from start to finish. Here is the process AMH recommends: Tenant issues a request. PM sends request to Maintenance Supervisor. Supervisor contacts tenant for further info and to schedule time for Technician to inspect the issue. Technician inspects issues, taking pictures and documenting findings.
Congratulations on starting your new business venture! It is challenging and rewarding and no day is the same. The key to making it all work is to automate and delegate when and where you can. One of the best things to both automate AND delegate is your bookkeeping. Starting your business with good bookkeeping practices early, will take a large load off your plate down the road. It is easier to catch mistakes in the beginning than it is to catch them in the end. These mistakes can be extremely costly and come with other consequences such as jail time or seized property if not caught and corrected in time. Do not be worried about having the money to pay for a professional regularly. My recommendation is to find a professional that understands your industry first. Be intentional. The goal is to find YOUR bookkeeper/accountant. Explain to them what you are looking for and what you need starting out and sign on to work with them. For example: You are starting an Etsy store and you have some inventory just recently purchased for the products you make. What you need: A bookkeeper/accountant who understands e-commerce, particularly the Etsy space and
As a bookkeeper, one common issue that I see with small business owners is the commingling of personal and business funds. It usually begins as a small purchase being made for the business accidentally with personal funds or vice versa. This is not a big deal if it is a one-time thing. When it becomes common place, larger issues can arise and the following questions need to be answered: For those personal purchases made using the business funds, are they being paid back to the business? Is the business paying the owner back for expenses made using personal funds? Are those business expenses that were made via personal funds being treated as an equity investment instead? Are the personal expenses paid for by business funds being treated as an owner draw? How will they affect the business and personal tax deductions? Aside from answering the above questions, deciphering what was a personal expense and what was a business expense so that your business receives optimal tax deductions and credits is CRITICAL. The time it takes your CPA or EA to do this can cost you thousands. In situations like these, having a bookkeeper handle your day to day financial data
One of the most recurring themes I have noticed as a bookkeeper is most business owners have not reconciled their bank or credit card accounts. I think this is due to the fact that some of them may not understand how powerful a simple task like this is AND how much information it can tell them about their businesses. Here are 7 reasons why this task is so crucial to the overall financial health of your business. Errors – Performing a reconciliation of your bank accounts every month can help locate errors made by you or the bank. Not to mention can catch illicit transfers performed within your accounts. This is especially essential if you have set up bank feeds in your accounting software. Prevention – Unauthorized charges by the bank, check fraud, and other serious issues can be identified AND corrected. Miscellaneous charges and large, out of the ordinary purchases are some prime examples. Powerful Decision Making – When you know where your money is coming from and where it is going, when you know all transactions are accurate and that balances are correct, you as the owner can make some very powerful decisions in regards to your company.