It is a property manager’s worst nightmare.
As the CFO of a mid-size firm, she is increasingly distressed as she watches the rising number of late payments and bouncing checks from her residential tenants. On the commercial side, vacancies are starting to pop up at an alarming rate.
This situation could describe the financial reality that many property managers are facing these days.
Now is the time that managers should be looking to do more, both externally and internally, in order to retain current tenants and to be positioned to grow quickly once the economic recovery begins.
Externally, management should be looking at ways to provide more value-added services for existing tenants. This could range from simple things to improve the maintenance of properties to providing services that will actually save tenants money.
Internally, management should be aware of the many financial management tools that can make business more streamlined and efficient.
For example, it is important that tenants’ rental checks are expedited as quickly as possible in order for that money to begin working, either by reducing interest expense or earning income. Management firms can set up a lockbox service, which is a post office box in the company’s name where checks can be sent to directly. With this service, a bank can expedite the processing of those checks without them having to be sent first to the real estate management/owner and then to the bank. This eliminates another step and also gets checks deposited sooner. Where a high volume of checks is concerned, this streamlined process can add up to significant savings.
An information-reporting feature, that is available at most banks, should also be considered. This allows management to be updated, either by fax or through the Internet, of balances on a daily basis. This feature can also pull together multiple accounts so that all account balances can be reported on a consolidated basis. This is a good supplement to the monthly statement and allows a more “real time” reading of your financial position.
While business checking accounts don’t earn interest, it is still possible to earn interest with an “end-of-day sweep” product. This allows for any excess funds in the account at the end of the day to be placed in an overnight investment vehicle where it can generate interest. Funds are returned to your account the following morning. Furthermore, if a line of credit exists, the funds that exceed a target balance can be used to pay down that line of credit with any additional excess balances going into an overnight investment sweep.
Banks offer many levels of reconciliation services to assist in making back office accounting more efficient. Based upon your accounting needs and capabilities, reconciliation services could include monthly reports detailing paid items, outstanding items, voids/cancels, stop payments, summary information reconciling last month’s balance, current month’s activity, and current month’s ending balance. For firms concerned with check fraud, a file of check issues can be sent and a bank can confirm whether or not the check was valid before processing any check presented for payment.
Many property managers have accounts at different banks for making local deposits, which makes balance concentration a very useful tool. It allows them to concentrate the balances in their various accounts into one main account so that they can better manage and utilize the combined value of their cash position.
Now is a good time to review the internal and external tools and systems you have in place and determine whether you are getting the best results possible.
