A Property Managers’ Solution, Part Three: Accounting
Originally published on April 11, 2014
Updated on August 16th, 2022
Property managers and operators of multi-family housing properties face many obstacles in today’s challenging economy. From finding qualified tenants, to coordination of maintenance projects, to accounting for rental transactions, there are so many moving parts and pieces to successfully manage a property. To make sure all of the pieces fit together (or just to manage the chaos), companies have to put in place processes to accomplish specific tasks. Ineffective processes can further complicate matters by creating bottlenecks, eliminating accountability, or just creating extra work. Conversely, effective processes can provide a competitive advantage and boost the bottom line.
In a three-part series we address three challenges that the multi-family housing industry faces in markets with large student populations, and propose why those that have decided to apply Lean Six Sigma methodologies have solved each challenge.
Florida statutes have specific requirements with regard to property owner’s money held in trust. A property manager’s accounting department must follow these requirements and have appropriate internal controls in place over the accounts.
Collecting rent and fees from tenants, paying operating expenses, and reconciling of bank accounts.
PROBLEMS WITH THE PROCESS
Poor communication between the accounting department and other departments within a company results in delayed or missed billings for late fees or property damage costs. Unnecessary delays can lead to lost tenant deposit forfeitures and the inability to hold tenants accountable for these charges. A lack of internal controls provides opportunity for fraudulent disbursements or out-of-balance reconciliations of accounts held in trust, which can carry significant consequences from regulatory authorities.
A basis of Lean Six Sigma methodologies is on understanding the voice of the customer. Most often, when individuals hear the term “customer” they think external of this business, but this is not the case. There are internal customers, as well. In this process the “customer” is an individual in another department.
Step one in resolving the problem in this process may be to address the need for increased communication between the accounting department, leasing department, and maintenance department, so that transactions for security deposits, rent, and property damages can be properly accounted for and billed to tenants without any misunderstanding.
The increased communication can be deliberate between personnel; however, automated systems can be set up in the software used by leasing agents or maintenance staff that will automatically alert accounting personnel of a pending charge.
A schedule of charges based on the leased space or type of damage could also be set up in the system so the proper amount is applied to the tenant. The schedule is also updated annually for rate changes. A more accurate and timely billing process should lead to a higher percentage of collections sooner, which increases cash flow.
Additionally, analysis of internal controls is critical, with identification of areas with the highest risk (such as controls over access to accounts held in trust) and placing checks and balances around those areas. Understanding the reconciliation process is crucial to business owners. Lastly, development of training and accountability programs are crucial to set the tone from the start and holding employees accountable for following the revised processes.
Are you ready to learn more about how Lean Six Sigma can improve your processes?
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