The acute shortage of accountants in the US affects both small and medium-sized businesses. For this reason, property management companies without in-house accounting staff need to seek outsourced accounting solutions to ensure their financials are in order.
Therefore, if you have been considering outsourced property management accounting, you need to find a firm that understands the evolving needs of the real estate industry and puts current technology at the forefront of its operations.
We’ll be exploring in detail what outsourced property management accounting entails, the costs involved, and how to choose the best outsourced accounting firm.
Let’s dive in.
Why Outsource Property Management Accounting
There are several reasons real estate companies outsource their accounting to accounting firms.
They include:
- Specialized Expertise: An outsourced accounting firm that works with property management companies has a better understanding of the pain points of property management accounting. They are also up to date with industry technologies, ensuring your company stays ahead of the competition.
- Reduced Operational Costs: Outsourcing accounting for property management companies reduces the costs of hiring and training accounting staff. It also reduces costs for accounting software, equipment, office space, and employee benefits such as insurance and retirement.
- More Time in Your Hands: For property managers, handling property inspections, tenant and vendor calls, while still managing your financial records, can be draining and stressful. It takes up time you could use to look for new tenants. Outsourcing your property management accounting tasks leaves you with more time to focus on other important aspects that could drive sales.
- Scalability: An outsourced accounting company scales with your portfolio. Whether you add 50 units or scale down, the infrastructure adjusts accordingly without the delays of hiring and firing or acquiring new software.
- Better Decision Making: Outsourced real estate accounting provides accurate, real-time reports, helping property management companies make informed decisions. For instance, budgeting and forecasting help companies stay ahead of trends, mitigating risks that could cause cash flow shortages and vendor breaches.
Property Management Accounting Tasks That Can Be Outsourced
Which tasks can you outsource to a property management accounting company? Well, while you can outsource all your accounting tasks, it’s also possible to outsource specific tasks while you have others handled internally.
Here are some of the tasks that you could outsource:
- Accounting and Bookkeeping: As your business grows, the risk of errors increases, making it essential to maintain clear, accurate records. Outsourced accounting and bookkeeping services handle all your transactions, manage cash flow, and ensure your tenant and property ledgers are clean and up-to-date.
- Payroll Management: Employment laws change frequently, and property management companies need to stay on top of any changes to avoid penalties. Outsourcing payroll management to a property management accounting firm ensures accurate and timely payments, multi-state tax compliance, and scalability.
- Tax Compliance: Once your business crosses borders, managing taxes becomes complicated as every jurisdiction has unique tax laws. Outsourcing this task to an accounting firm with the technical know-how and experience handling multistate and global taxes ensures compliance while identifying savings opportunities.
- Infrastructure Management: The spreadsheet system that you used to manage 30 units becomes frustrating once you have over 60 units. It calls for a robust digital system, such as Sage Intacct, that seamlessly integrates with your CRM and smart banking networks and manages multi-entity portfolios. Outsourced accounting manages your business accounting software for you, providing accurate monthly reports to help you make smart decisions.
- Accounts Payable (AP) & Accounts Receivable (AR): AP entails receiving, approving, and processing vendors’ and suppliers’ invoices. Outsourcing this service to accounting firms prevents duplication errors and late payments that could hurt your relationship with suppliers.
On the other hand, AR handles rent collection, reconciliation, and debt management, ensuring healthy cash flow.
With 30-plus years of accounting and advisory experience, our team covers everything from bookkeeping to Sage Intacct implementation and CFO support.
Reach out to start a conversation.
How Outsourced Property Management Accounting Works
Outsourced property management accounting involves hiring a third-party company to handle your accounting tasks instead of having an internal team.
Here’s a breakdown of how real estate accounting outsourcing works:
1. Scope of Work Assessment
If you have been thinking of hiring a property management accounting firm, you need first to list all the accounting tasks that are giving you a headache. Is it the taxes? Payroll?
For instance, if you have been struggling with late payments and vendor disputes, we recommend outsourcing accounts payable. It relieves you of the stress of handling payments and promotes healthy relationships.
2. Accounting Provider Vetting
Once you are clear with the scope of accounting tasks to outsource, it’s time to vet your accounting provider. Vetting them ensures they are experienced in real estate accounting and that their software integrates with your existing systems.
3. Accounting System Set-Up and Integration
The right property management accounting provider will start by helping you set up the digital accounting infrastructure. The software integrates with your existing systems, giving you control over your financial data. If you have been operating manually, the firm will also upload your financial records to an accounting software platform such as Sage Intacct. This cloud-based solution provides real-time visibility into your financial operations. A reputable accounting firm can advise on the most suitable platform based on your portfolio size.
4. Day-To-Day Workflow
The day-to-day duties of outsourced accounting solutions involve: tracking rent and lease payments, flagging late payments, rent collection, paying vendors and supplier invoices, common area maintenance (CAM)distribution, recording maintenance and repairs expenditures, and processing late fees and refunds.
5. Monthly Financial Reporting
Your outsourced accounting partner issues monthly and quarterly reports on financial property performance, cash inflows and outflows, rental income, and strategic insights for future planning.
In the case of outsourced controller/CFO services, you also receive higher-level accounting reports, such as budgeting, forecasting, and compliance with accounting standards, to support better decision-making.
How Much Does Outsourced Property Management Accounting Cost?
Outsourced accounting costs vary based on factors such as portfolio size and scope of work. However, the costs range from $500 for basic accounting services to $500,000+ for complex and high-level controller/CFO services.
Here’s a summary of the cost of outsourcing accounting services:
| Pricing Model | Cost Range | Best For |
| Monthly retainer | $500 to $500,000 | You pay a monthly flat fee depending on the services offered. It’s suitable for property management companies with consistent and predictable needs. When the scope of work increases, the retainer fee must be renegotiated. |
| Hourly rates | $30 to $80 | With this model, you only pay for the hours you need. It’s best for property management companies whose needs are variable and highly uncertain. The downside of this model is that budgeting becomes difficult for property managers when the scope of work changes. |
| Volume/Transaction-based | $0.50 to $5 per transaction | With this model, you pay per transaction or per the volume of work done. For instance, for every invoice processed, you pay $3. This method favors growing businesses since it’s scalable. However, as the volume of work increases, it becomes expensive for the property manager. |
What Most Property Managers Get Wrong About Outsourced Accounting
Despite the benefits of outsourcing accounting, property managers often hesitate due to common industry misconceptions.
Let’s correct these misconceptions about outsourced accounting.
- Outsourced Accounting is Ideal for Big Companies: This is a common mistake, but the truth is that outsourced accounting is ideal for both small and medium-sized property management companies. You can leverage the expertise of professional bookkeepers and CFOs without hiring internally.
- Outsourced Accounting is Expensive: The contrary is true. Hiring and running an accounting team could be more expensive than outsourcing. If your workload isn’t much, paying hourly for outsourced accounting becomes cheaper than paying a full-time employee.
- Loss of Control: Most managers worry that they will have less control over their financial records when they outsource. The right accounting partner works closely with you and integrates accounting software to help you get real-time financial data.
- Data Safety Concerns: While data safety is a valid concern for property managers, reputable accounting firms adhere to data protection laws and policies.
How to Choose an Outsourced Property Accounting Provider
If you are managing more than 50 units and are already feeling overwhelmed by the accounting tasks, it’s a clear sign that it’s time to outsource.
When choosing an outsourced property accounting partner, consider these things:
- Specialized Expertise: Get a partner who understands GAAP rules that apply to property management accounting and compliance issues that could result in hefty penalties.
- Years of Experience: Check for a firm with years of experience in property management accounting to give you confidence and allow you to focus on other aspects of your business.
- Local Versus Offshore: Weigh the pros and cons of hiring a local accounting firm versus an offshore firm. When you choose an offshore outsourced property accounting firm, you pay less, but you also have to factor in the time difference. On the other hand, you pay more for local accounting firms, but the time difference isn’t an issue.
- Technology Capabilities: Find out if the accounting firm’s software can integrate with your property management platforms. Also, ensure that their technology allows you to access your financial data without any hindrances. Go with a firm that uses modern real estate technology, like Sage Intacct, for real-time financial visibility and streamlined operations.
Frequently Asked Questions (FAQs)
Let’s answer some of the most common questions property managers ask about outsourced property management accounting.
Is Outsourced Property Management Accounting Safe for Trust and Tenant Funds?
The short answer is yes.
A reputable accounting provider that adheres to strict internal controls will ensure your trust and tenant funds are safe. Your outsourced accounting partner will ensure a separation of operations funds from trust and tenant funds.
What Is the Difference Between Outsourcing and Hiring an In-House Bookkeeper?
Hiring an in-house bookkeeper means hiring a full-time employee with benefits and other overhead costs.
On the other hand, outsourcing tasks to a bookkeeper means that you only pay for what you need. If you only need help for a few hours a week, you pay for that, saving you on the costs that come with hiring and training a full-time bookkeeper.
How Long Does a Transition to an Outsourced Provider Take?
The transition process takes between 30 days and 90 days.
In the first 30 days, the handover takes place, and the outsourced accounting provider is still learning the ropes of your business. By the end of the third month, they can handle all outsourced accounting tasks and submit financial reports with minimal consultation.
Will I Keep Control Over My Financial Reporting?
Yes.
After outsourcing, you still own the data and the software, allowing you access whenever you need. The outsourced accounting firm works with your systems, ensuring you retain control over your financials.
Does Outsourced Property Management Accounting Work for Small Portfolios?
Outsourced accounting works for small portfolios.
If you are planning to scale your property management business, outsourcing early is best; it allows your business to grow with your accounting systems. That way, once your portfolio doubles, you won’t have to get a new system that can handle your portfolio.
Conclusion
If you have been experiencing recurring accounting errors despite having an internal accounting team, consider outsourced accounting. If you have been doing it all by yourself, but your portfolio has outgrown your hands, and it’s now overwhelming, outsourcing accounting is the way to go.
Outsourced property management accounting is ideal for businesses that want to scale, remain compliant, and maintain auditing-ready financial records.
At CDH, we’ve spent over 30 years integrating full-service advisory and technology expertise to provide seamless accounting to property management companies. We conduct financial audits and provide risk advisory support to add another layer of confidence around your financial reporting.
If you’d like to know whether moving or outsourcing your property is the right move, contact CDH experts today.
