When it comes to running a property management company or being a property manager, the accounting side of things can be stressful and confusing if you aren’t familiar with the terminology surrounding your finances. 

However, every business owner knows how important it is to learn the ins and outs of your company’s financial health. That’s why every rental property manager should understand all of the terminology that is a part of learning the property management accounting basics, in addition to using the top accounting software on the market. 

An imperative aspect of running any successful company is keeping a close eye on all your finances. However, we know that this is easier said than done. 

With all of the daily tasks associated with running a property management business, you may not have the time or the energy to approach the daunting task of sorting out the finances of your company. 

Luckily, there is a long list of various property management accounting tools that you can use to make this aspect of your business easier. By using a property management accounting system to manage your finances, you will be able to meticulously keep track of every rental property that is under your care. 

Additionally, you can easily see how much income each rental property is generating every month. Reputable and user-friendly property management accounting software will ultimately allow you to not only see your income but keep an eye on your expenses without feeling confused or frustrated. 

Person with pink nail polish using a fountain pen to write notes

While accounting can be an intimidating subject when it comes to property management, it doesn’t have to be! Our following guide will take you through a list of accounting terminology that you need to know, simplifying these terms so that you can feel prepared to approach your financial information confidently. 

Keep reading for our comprehensive list of property management accounting software that you can use to help you manage your finances with ease! By the end of this guide, you will have all the information needed to feel confident about your ability to transform your financial health when it comes to your company. 

Property Management Accounting Terminology to Know

When you manage rental properties, there tends to be a lot of bookkeeping that comes with the job. There is a lot of lingo associated with accounting that can be confusing to understand if you are not familiar with the terminology. The following is our list of property management accounting terms that will be most useful for you to know.

Let’s start with the basics! An account is a thorough record of any and all transactions that have been made by your company. Accounts are typically separated into five different categories. They are assets, liabilities, home equity, revenues, and expenses. 

Cropped image of a person with tattoos on their arms studying a book and notes at a table

But what do these categories refer to when it comes to your business? Keep reading to find out!

Assets: This refers to anything that you or your business may own that would have a monetary value. Typically these assets are ordered from cash (which is the most liquid asset that you can have). This is followed by land or properties (the least liquid asset). The liquidity of an asset refers to how easy it would be for a company or a person to access its monetary value. 

Liability: A liability is any debt that you or your company have yet to pay back. This can be a loan or accounts payable. A loan would be a long-term liability, whereas something like a payroll would be considered a month-to-month liability. 

Equity: Your equity refers to the total value of your business after taking all liabilities into account. In order to determine your equity, you must take the monetary value of your assets and subtract the cost of your liabilities. Your equity is the portion of your business that you own outright.

Now that you’re familiar with assets, liability, and equity, let’s talk about your revenue and expenses. Generally, these are the two kinds of transactions that would occur in your account every month. But what exactly are they?

Three focused people comparing notes at a conference table

Expense: This refers to any and all costs that your company must pay for to keep the operations moving. This can refer to a wide variety of expenses, like paying staff members, advertising your company, utility bills, or the monthly rent. The money that you owe to pay for these expenses is called accounts payable. 

Revenue: This refers to the income generated by your company. Any funds that you have earned that have not yet been collected are called accounts receivable. 

Other terms for these transactions are debits and credits. A debit is when your company has an increase in an asset or an expense account. A debit may also occur when there is a decrease in a liability or an equity account. 

Alternatively, a credit refers to exactly the opposite. A credit is when your company experiences an increase in a liability or an equity account, or a decrease in an asset or an expense account. 

Different Ways That You Can Keep Track of Your Finances

When it comes to approaching the accounting side of property management, there are two kinds of principles that one can use. These principles are called accrual basis accounting and cash basis accounting. The difference between these two principles has to do with when the income and expenses of your company are being recorded. 

Person wearing glasses pointing at something on a tablet another person is holding

When you decide to use an accrual basis accounting system for your company, your revenue will be recorded as soon as it occurs. Alternatively, if you use a cash basis property management accounting system, your revenue will not be recorded until the credit payment has been received. 

How to Read an Income Statement

If you run any kind of business, you know that reading an income statement correctly can have quite the learning curve. However, once you get the hang of it, you’ll be able to determine the financial health of your company with ease, and promptly make a plan to improve it.

Income statements are one of the most common financial statements used by an accountant or accounting software to provide you with information on your finances. This statement is ultimately designed to provide you with a thorough and comprehensive summary of what your current financial state looks like. 

While your income statement may include a wide variety of terms and figures that can often feel confusing to decipher, the following is a guide to the most common terms that you may encounter in your income statement.

Cost of Goods Sold: The cost of goods sold refers to the general expenses associated with providing your goods or services. For property management, this would refer to any expenses or labor costs that occur when the company is providing its services to clients.

Person wearing a black suit using a calculator and writing notes

Gross Profit: Your gross profit will be the amount of profit that your business has made before subtracting your overhead expenses. This number does not take things like office space expenses or the cost of paying staff into account. To determine your gross profit, subtract your cost of goods sold from your revenue total over the same time period.

Gross Margin: The gross margin of your business is the percentage of profitability after taking the cost of goods sold into account. You can determine this percentage by dividing your gross profit by your total revenue. These numbers must be over the same period of time. 

Net Income: Your net income is the amount that your company has earned in profit. This is represented in dollars. To calculate your net income, subtract all of your company’s expenses (cost of goods sold, depreciation, overhead expenses, staff payroll, tax deductions, supplies, office space) from your total revenue. 

Net Margin: The net margin of your company is represented in a percentage, and it shows the profit of your company in comparison to the profits that are coming in. You can calculate your company’s net margin by dividing the revenue of your business by the net income over the same period of time. 

A person using a calculator to work on financial documents

Return on Investment (ROI): The meaning of the term Return on Investment has evolved in the accounting world over time. Your Return on Investment is a percentage that generally refers to the return or revenue that is produced by a certain project or objective. 

For example, let’s say your property management firm decides to spend $1,000 on marketing via social media. Then, this social media marketing campaign causes you to work with a new client that is valued at $2,000. In this case, your return on investment regarding your social media advertising campaign would be 100%. 

The Best Property Management Accounting Tools

Now that you know all of the basic terminology associated with accounting and you have a good understanding of how to decipher your financial statements, let’s talk about some tools that you can use to make all of this easier and less time-consuming. 

There is a wide pool of both generic and specific property management accounting software that can help you stay on track with your company’s finances without all the frustration. 

Each software has its own set of pros and cons that will be unique to the needs of your business. These accounting software tools will be useful for both residential and commercial property management finances. 

Calculator next to a ballpoint pen on printed financial documents

But where do you start? There are endless options when it comes to accounting software, and it can be difficult to determine which one will be right for you. That’s why we have provided a brief overview of some of our favorite software tools to help you keep track of your company’s finances.

1. Quickbooks

Quickbooks is one of the most popular accounting software on the market, and for good reason! Over the years, Quickbooks has grown to be much more than just your average financial tracking software. 

Quickbooks offers customers a wide variety of tools including ReceiptBank, a tool that you can use to keep track of your receipts, TSheets, which is a tool that your employees can use to simplify your company’s payroll and keep track of hours, and Square, which is a reliable mobile payment processor. 

Quickbooks is easy to understand and property managers can use it to keep thorough track of expenses, create invoices and send them, track their company’s mileage and receipts, pay their staff, and ultimately maintain the level of organization that every business owner strives for when it comes to finances. 

Business owners of all types can use Quickbooks, and its increase in popularity is no surprise!

Focused person wearing glasses and working on a laptop

2. FreshBooks

If you’re just starting your small property management business and you want to manage both the financial side of your business and your relationships with your clients, then you may want to look into FreshBooks

FreshBooks is cloud-based, adding a new level of convenience. The FreshBooks software can equip you with the ability to easily keep track of everything related to your company. 

Monitor your expenses and transactions, create invoices and send them, track your staff’s working hours, and allow your hard-working team to collaborate on various types of projects (if you’ve ever used a productivity app or CRM property management software, then you’ll be familiar with this aspect of the platform!).

There are over 100 app integrations that are accessible through FreshBooks. This means that as a business owner, you will be able to collaborate with your team of employees and work with your clients easily as you streamline the operations of your company. 

Compatible apps that you can integrate with the FreshBooks platform include Slack, Gmail, MailChimp, and a wide variety of different payment processing apps. 

3. Buildium

If you are looking for accounting and project management software that is specifically geared toward property management, then Buildium could be the platform for you. Buildium’s intentional and user-friendly software is expertly designed to manage not just your property management accounting and finances but all the day-to-day operational aspects of your company as well! 

Cropped image of a person counting dollar bills at their desk

When you use Buildium, you’ll be able to access property accounts, set up an online payment option for your tenants, store all of your important documents, keep track of any active maintenance requests that your tenants have made, and create an online portal for all of your residents to access anything they may need. 

Buildium even features the ability to help you manage the details of your entire leasing process, making every aspect of your rental property run smoothly and seamlessly, minus the stress. 

If you love the idea of using a property management accounting software that can help you in any area of your business and that is designed to make your life easier as a property manager, Buildium is an excellent and reliable choice!

4. Sage Accounting

If you’re looking for accounting software that has vast experience supporting small, independent businesses, then Sage Accounting is a great place to start! With over 35 years behind them when it comes to helping small businesses achieve their ideal financial health, Sage Accounting offers a wide variety of services. 

This includes a long list of accounting tools like accounts payable and accounts receivable services, and managing billing and invoicing. You can look at a cash flow statement that makes it easy to follow things like rent payments and maintenance costs.

At the end of the day, this is an accounting tool that you can trust to take a large number of financial tasks off your hands, allowing you to focus on building your company and your team. 

Calculator and pen on a table

For the highest level of convenience, Sage Accounting is a cloud-based software. This means that when you use Sage Accounting, you will be able to access and manage your financial information from anywhere at any time. By choosing Sage Accounting, your financial health will always be just a click away. 

5. Bench

If your management company is based in the United States, then you will be able to access this amazing and unique accounting software. Bench is a cloud-based software that allows for optimal accessibility from anywhere at any time. 

However, while other cloud-based accounting services would require you as a business owner to manually manage your accounting yourself, Bench goes the extra mile by offering small businesses their own tailored professional bookkeeping services. 

The professional accountants at Bench are real people rather than just another automated system that will handle your finances. 

These professional bookkeepers will use the Bench accounting software provided to import your property management company’s bank statements, categorize your business expenses, and provide you with a comprehensive and easy-to-understand bank statement each and every month. 

These financial statements allows you to stay up to date on your financial health regarding your property management business, so your accounting will always be thoroughly managed. At the end of the day, Bench is an excellent choice for anyone who wants a unique and tailored accounting experience for their small business!

Bottom Line

Ultimately, when you run a company, there can be an endless list of things to think about. From property maintenance and repairs to advertising your rentals, managing properties is hard work. 

That’s why, when it comes to the accounting side of your company, you want to know that you are covered. Learning how to operate a new accounting software and integrating it into your business model and daily operations can be a daunting task, but it’s always worth your time! 

But where do you start? We recommend beginning by determining what your company’s financial needs are. How can a new property management accounting software be added to your current setup? What specific features would benefit your company the most? When it comes to these decisions, you will know best as the owner. 

After you have thoroughly researched what you wish to improve when it comes to your property management company, please do not hesitate to contact the knowledgeable and reputable team here at Backed Homes to help you determine what your next steps can be in your financial journey!