BiggerPockets

Accounting A Core Investment Consideration

Accounting is a core business area that requires diligence on the part of an investor. Simply the existing of accounting does not prove the business area is being effective. As an investor, good accounting can forecast issues allowing steps to be taken to prevent disaster or can allow taking advantage of unexpected opportunities. Strong accounting is the key to timely reports for investors and timely submission of taxes.

As part and parcel to developing processes and procedures, the company should have a selected accounting firm that is experienced with the chose accounting software and should have chosen the software that will be used for property accounting.

Unless the project is expected to be a one off investment, the Company should select an integrated property management system that provides accounting function. Specifics system consideration factors are covered in a separate chapter.

Processes and procedures should exist for:

· Creating (if this is a portfolio investment) new property accounts beginning with all entries prior to closing and the closing schedules of payments (normally a HUD1).

· Posting rent, new renter deposits, and fees,

· Posting payable items including new invoices and contracts,

· Posting capital expenditures on the property,

· Identifying and segregating non-day to day entries,

· Completing and maintaining payroll,

· Monthly reconciliation of cash,

· Completing and verifying month end statements,

· Completing and verifying year end statements,

· Preparing year end 1099s,

· Completing year end taxes

The investor lead should review the above items and expectations for those items with the chosen outside accountant. As an outside investor, an accounting firm's letter summarizing experience, confirmation of review of the company's procedures, acceptance of this role, and some applicable references are reasonable expectations.

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