I’m evaluating Manager for use with a property management company. This company will have its own set of income/expenses and will have to manage rental incomes and property expenses for individual clients.
Obviously, each client’s income/expenses will be need to kept separate with all client transactions coming from a trust account, while the management company expenses would be from a regular bank account.
What is the best way to manage accounting for each property? Through a tracking code for each property, or through an inventory item for each property? Does one have an advantage over the other?
Would it make sense to break everything into TWO separate businesses, one for the management company, and another for all the client properties? Or would it be easier to keep everything under one business? If possible to keep things under one business, I would prefer to do this for simplicity.
Definitely not inventory. The rental properties are not held for sale or production. Hence, they are not inventory. Tracking codes are a suitable method.
Unnecessary. After all, the business of the management company involves operating the rental properties for their owners. That statement, however, applies to your work providing management of the properties. You might buy things, hire and pay contractors, and so forth. You might even be deputized to make mortgage payments, etc. But all that is still executing the business of managing properties, even though many of the expenses will be passed on to the owners. These activities should not be confused with the owners’ needs to keep their own books. They, too, are running businesses, owning and renting properties. Part of their business expense is paying you to manage their property. Now, if they want to pay you to keep those books for them, that is a separate issue. Those records should not be mixed with yours.
Thanks for the feedback. I’ve been going through the forums and the Guides, and so far this is what I’ve come up with for the property management business:
- Create a CUSTOM CONTROL ACCOUNT For each client (a client may own multiple properties).
- For each control account, create a SPECIAL ACCOUNT for each property owned by the client.
As far as I can tell, this structure would allow me to provide each client with a P&L for each property as well as an overall P&L for their entire portfolio.
I don’t see how tracking codes would help in this scenario.
Would this be the best structure for a Property Management company?
Control and special accounts are on the balance sheet side. Tracking codes are for the P&L.
Ok, is there a straightforward method that I could use to keep track of each customer’s balance sheet and P&L simultaneously?
Or would I have to employ both tracking codes and control/special accounts to do so? Seems like thats double work.
No there not. But isn’t double work to maintain. Once set up, you just need to apply correct tracking codes to line items.
The only extra work would be extracting balance sheet information. But doing so would be unusual for you a property management company. You will have your balance sheet. Owners should maintain their own as part of their books.
Thanks, will look into tracking codes, as that seems the proper way to manage a separate P&L for each property.
As far as balance is concerned, the lease payments and property expenses will be coming from a single trust account. I will need to keep track of the funds each client has in the trust account, which is why I inquired about the special accounts. Is it possible to keep track of each client’s balance without using special accounts?
Only with separate bank accounts.
So a single control account for the underlying trust account and then individual bank accounts for each customer linked to the single Trust control account?
No. Read the Guide about special accounts.
I’ve read and re-read the special accounts Guide and it seems to do what I want from a Balance Sheet perspective, but unfortunately, I can’t figure out how to get it to track P&L simultaneously.
Once I’ve set up special accounts for each property, all transactions recorded only affect the balance sheet. There appears to be no way to have a transaction affect the P&L.
Client A owns Property 1 and Property 2.
Property 1 and Property 2 are set up as Special Accounts with the Trust Account as the control account.
I collect rent for Client A on Property1. This gets recorded as income into special account (Property 1), which gets deposited to the trust account. This will show up on the balance sheet, but where/how am I able to specify this as rental income for P&L purposes?
The same goes for an expense. I pay the gardner to do work on Property 2. He gets paid from the special account Property 2. Again this shows up on the balance sheet, but needs to be listed as a maintenance expense for P&L purposes.
What am I missing?
You are missing what I’ve already told you. Tracking codes are for the P&L. Read the Guide about them.
Thank you for the guidance so far, but I’ve read the tracking code guide and either I am not understanding something, or there is a component missing.
One Bank Account: Trust Account
One Client as a Control Account: Client One
Properties owned by Client One as Special Accounts: Property A, Property B, Property C
Tracking Codes to match properties: Property A, Property B, Property C
Now suppose I collect $2,500 rental income on Property A for Client One:
- To get the balance sheet to update, I need to reference the special account Client One -> Property A as shown.
- Then as suggested, I am using Tracking Code (Property A). But despite using the tracking code, no where am I able to classify this receipt as RENTAL INCOME.
After entering the above transaction, the SUMMARY Page shows:
- The balance sheet is updated, but I would like the $2,500 receipt to be listed as RENT RECEIVED on the P&L.
I could make a tracking code for every expense category. Is this what you are suggesting?
First, Trust Account should only be set up as a bank account if it is an actual bank account at a financial institution. In other words, is that where you deposit the cheques? (I’m just confirming.)
Second, the balance sheet looks correct. You received $2,500 on behalf of your client. It is not your money, but Client One’s money. So you owe Client One $2,500. And that amount does indeed show up as a liability.
That is because it is not your income. Applying the tracking code had no effect in this case, because the receipt was posted to a balance sheet account. (But it does no harm.)
To see what I mean, enter a sample receipt for interest and post it to your Inerest income account, applying the tracking code for Property A. Then generate a profit and loss statement by tracking code for Property A in the Reports tab. You will see the interest on the Summary page. You will also see it in the Property A P&L, but in the P&L for other tracking codes. The distinction here is that the interest is your income, but it was earned on Property A.
Absolutely not. Tracking codes automatically (and irrevocably) apply to all income and expense accounts. But they apply to no balance sheet accounts.
Yes. A single trust account will keep client funds for property management. Therefore it is essential I maintain proper records to know balances for each client.
Alright, that makes sense.
So, as property manager, I keep track of income and expense categories for each property I manage for my clients. What would be the best way to manage P&L for my clients, while simultaneously keeping track of their balances?
I would prefer to be able to put all clients into one business and somehow separate them using special accounts (or some other method), but maybe its not possible? It almost seems like I would need to set up a separate business for each client (and not use special accounts), and then use tracking codes for each individual property. Is this the best way to manage this, or do you have another suggestion?
@gururise, I keep getting the impression you are not reading my responses.
Reread my post #2. I addressed the issue of your business being separate from your clients’ businesses and how keeping your books is different from keeping their books.
I’ve already answered this. You can keep track of your liabilities to your clients with special accounts. But this is not the same as keeping their balance sheets. For example, you very likely do not know how much money they have invested in their properties unless they are paying you to keep their books. You are keeping your books and using special accounts to separate money you hold on behalf of each client, amounts you owe to each client, etc.
You would only do this if they are paying you to be their bookkeeper or accountant. That is different from being paid to manage properties.
Your responses indicate you may be inexperienced at this. I strongly recommend spending a couple hours with a qualified accountant to address these issues. They really go well beyond a forum dedicated to use of an accounting program.
My (limited) understanding is that part of managing properties is to create an expense report for the client, so they can know where their money is being spent.
You are right. I am quite inexperienced at dealing with accounting software and the accounting side of things. I will be taking over this property management business and am trying to adopt the methodologies they used, which seem to be common for the area I’m in.
Thanks for your help. I’ll review the methodology with a professional accountant to see if a Property Management company even needs to keep track of expenses/balances in such a manner as described above.
You might produce what your clients need by generating tracking code-based P&L reports, but that will depend on your accounting practices. You could also get some of the information by using Billable Expenses and sending them invoices for “pass-through” expenses. All of this depends on your objectives, and the accountant can help you determine what those should be. You may also need conversations with your clients to determine their expectations and understand how they are monitoring their investments.