KriyaGo - Blog #reconciliation

Common Lease Abstraction Issues and How To Solve Them

Fri, 03 Sep 2021 09:00:00 -0400

Leases are bulky but essential documents in every real estate business. These documents carry important clauses, making lease management even more difficult. Reading leases every time a tenant wants to sign them can be time-consuming. Instead, lease abstracts serve as a summary of the original document. These abstracts contain important clauses which make them easier to understand.

Even though they sound simple, lease abstracts are complicated to prepare. Since they represent the lease, abstracts need to be accurate and contain all the details. If you want to prepare lease abstracts for your properties, our guide on how to solve the common lease abstraction issues will help you.

Why are lease abstractions important?

Lease abstractions are not mere summaries of leases but also have numerous benefits for the real estate business.

Easily explains lease terms to tenants. Tenants can skip reading the bulky lease and choose the abstract which contains the extract of the same information.

Improves investment by providing information to calculate risk factors. Lease abstracts collect all information in a single place that lets you study it easily and determine market risks.
Determines values of the portfolio by collecting relevant information.
Lease abstracts are easier to present to clients. They can go through and understand your property management process without reading complex clauses.

Typically, a lease abstract is about 3 to 5 pages long. To condense the lease within these limits, employees have to face numerous challenges.

Common lease abstraction issues

Compliance with lease accounting standards

The Financial Accounting Standards Board (FASB) has released new lease accounting standards. This has set new guidelines for lease data management, making abstractions more complex. Real estate companies without organized data management plans find it difficult to meet these new guidelines.

Lease abstracts need adequate data to comply with the new standards. But many real estate businesses lack the storage and information to ensure FASB compliance. This can be a significant lease abstraction challenge. If the abstract doesn’t comply, then the business can face legal consequences. Adding to it, FASB standards also change from time to time, which means the leases need to be updated.

Bulky documents

Bulky lease documents and complex terms are the hardest to abstract. Since lease abstracts need to be short, you have to find important clauses from the document while making sure nothing is left out.

The real estate industry also uses traditional methods even if it is slowly upgrading to technology. So, most leases are manual work that requires employees to study them extensively to prepare the abstracts.

Moreover, disorganized data requires employees to scour through multiple documents to obtain the required information.

Extracting important data

Identifying which clauses are important is another challenge of lease abstractions. Bulky leases have more important clauses but the abstracts still need to be short. It is a task to summarize bulky leases by filtering additional information.

A lease abstraction typically includes:

The property address and basic tenant information.
Rent and security deposit information.

Any information regarding tax, maintenance, and CAM.
Lease renewal and termination clauses.
Lease termination clauses

Apart from these, any other information that can impact tenancy should be included in the abstract. Companies that do not create and store leases online face difficulties while recovering relevant data for their business. Excluding even a single important detail in the abstract can have a negative impact on tenants.

How to overcome these challenges?

Lease abstracts are challenging. But with the right resources, you can create accurate, legally complying abstracts. The below solutions help you clear your lease abstraction issues and also create better abstractions.

Use the latest technology

Lease data management is the basic challenge property managers encounter during abstractions. If you manage leases on paper or spreadsheets, then it is time to upgrade to new technology. According to Market Watch, 88% of spreadsheets have errors. Instead, you can use specific software to organize and manage data.

You can choose off-the-shelf software that is designed to suit most businesses. Or, you can integrate multiple software on a single platform, which lets you customize the software according to business needs. Companies like KriyaGo help integrate top property management software so you can leverage all the features in a single place.

Update lease data

Currently, leases are made in compliance with the FASB standards. As times change, these standards are also continuously updated. Though lease abstraction is a one-time process, it needs to be regularly updated with the latest information. This is to ensure that you are legally safe and disclose all the information as directed by law.

Tag the abstracts

Lease abstracts have their origin in the lease documents. If you are making leases online, then it is easy to tag any important terms and clauses in the abstract. This will help you look up the clause in the lease.

By keeping track of what information goes on the abstracts, you can also change them according to standards. Bookmarking also helps you review and remake abstracts, in case they are too long or short.

Outsource lease abstractions

The best way to create perfect lease abstracts is through outsourcing. Managed service providers have expert employees with relevant work experience. These experts identify important clauses and create lease abstracts suiting your requirements. They can also update leases from time to time and keep track of any changes in the FASB standards.

Outsourcing lease abstractions can also help you save money while ensuring quality. Good abstracts have a positive impact on tenants and help you build a better brand image.

Create perfect lease abstract with KriyaGo

Can’t manage the bulky paperwork? Let KriyaGo handle it for you! Our experts have relevant experience in creating lease abstractions for real estate businesses. Regardless of the size of your business, we can strategize and help you with lease abstractions and administrations. We also help our clients with back-office accounting and CAM reconciliation.

KriyaGo also integrates real estate software to create bespoke software for businesses. Whether you want better CRM software or want to organize your data, we have the right tools for you. Integrate more solutions and streamline productivity the easy way. Take a look at KriyaGo Blox today!

The Top 10 Property Accounting Mistakes You Need to Avoid

Thu, 15 Jul 2021 09:00:00 -0400

As a property manager, accounting is a significant part of your work. In 2020 alone, 5.64 million existing homes were sold in the US. With so much transactional data, you need to have strong accounting skills to maintain a realistic picture of your company's financial health.

According to Wasp Barcode Technologies, 60% of small business owners feel they do not have adequate accounting knowledge. This can lead to poor management of records and an inaccurate understanding of your company's financial situation.

In property accounting, there is little room for mistakes. If you are just getting started, then here is a helpful guide on the common accounting mistakes you can avoid as a property manager.

1. Not Separating Business and Personal Accounts

Technically, your commission and salary belong to you as a property manager. But, mixing your personal and business transactions is not only unprofessional but also inefficient. Using your personal account makes it difficult to distinguish between business and personal transactions. This leads to additional work during tax season and may also add to tax costs.

Luz Urrutia, a member of the Forbes Finance Council, says that using your personal account for professional transactions makes it difficult to gauge the financial health of your business.

Having a separate business account keeps all your business transactions in one place. It also makes you more credible from the client's perspective. By maintaining individual accounts, you can maintain a clear audit trail and a strong business credit score.

2. Insufficient data backup and security

Your accounting data is under constant threat, even if it is stored digitally. Several factors like a technical failure, mistaken deletion, or even a power outage can cause significant data loss.

Hosting Tribunal reports that 40% of all data losses are caused by hardware failure. It further adds that 40-60% of small businesses won't recover from a data loss.

Backing up financial data to a cloud is an efficient choice for property managers. You should back up your data to:

Protect your data from human errors, malware, and hard disk damage.
Move data from one server to another

Avoid loss during major software or website updates

Using the cloud also allows you to automate frequent data backups and remote restorations using any connectible device. Your data is also secure since it is encrypted.

3. Lack of adequate training sessions

Property accounting requires occasional software updates. Different accounting software has different standards as well, which may not suit your needs. You don't want to look for workarounds every time. That increases workload and complicates time management.

Employees need to devote time to familiarise themselves with existing systems and software updates. Training ensures that the workers make the best use of the features on offer. Learning the shortcuts will save time and data entry errors.

KriyaGo has a team of experienced and professional accountants who can handle your accounting worries. We will help you free up resources and avoid making things more complicated. Let us help you manage your portfolio of properties and address your unique set of bookkeeping needs.

4. Unsuitable resources

Property accounting needs two things: the right software and the right person. Generic accounting software lacks features like separate profit or loss statements per property or automatic monthly payments, essential for property accounting.

According to Forbes, RPA has decreased the accounting time from several months to a few weeks. You can choose a dedicated software for property accounting or consult KriyaGo so we can build one for you.

Similarly, hiring the right person is also important to get the best out of the software. Most businesses employ inexperienced staff when they are new. This can lead to low rates of production and increased business.

Hiring a professional can build a good framework and set the right pace for your business.

5. Tracking commissions separately

Hiring a professional can build a good framework and set the right pace for your business.

6. Disbursement of funds before closing the transaction

You cannot consider the funds held in a trust or escrow as a commission before the official documents are signed. If you disburse these funds early on, your brokerage will not comply with the governing bodies. Such disbursements happen often but are not a good idea.

Moreover, if the commissions are renegotiated last minute, you will have to collect back the disbursements. What should have been a single-step reversal of funds will turn into a multi-step, complicated process.

It is best to wait till all the documents are signed and the keys are handed over before distributing the checks to everyone involved.

7. Lack of efficient scaling

Almost all property management companies aim at one thing--growth. You can achieve this goal in several ways. You can add more people to different departments or get more agents and brokers. But with the development of your company, you will need to upscale your back office accounting.

Several companies fail to upscale their accounting, which is inefficient to deal with the increased transactions that come with its growth.

You can add more staff to your back office. But a better option is to digitize your accounting through a real estate software support company like KriyaGo, which provides the right software solutions.

8. Inaccurate data classification

Many property managers make mistakes while classifying data. Not organizing data accordingly (such as capital expenditure, repairs, and maintenance) can make the audit process difficult and time-consuming. By accurately classifying them, you can save on taxes as different items attract different amounts of tax.

Data classification can look time-consuming. But with a monthly review, you can get your financial data right and generate important reports such as P&l statements and tax documents.

If you are unsure about data classification, you can get your books checked by a professional to ensure the proper data classification.

Professionals know the industry norms well and can save you from tax complications later on. They can also advise you on the right property accounting software to make your bookkeeping process easier.

9. Not following the tax filing process

Not following the proper tax filing process can cause problems later on. Most investors look at the tax records of your property before investing. Having poorly managed tax records can negatively impact your relationship with your clients.

There are two ways you can file your tax returns: cash and accrual.

Cash accounting records your transactions as they are received or paid. Accrual accounting records them as revenue and expenses.

Consider both methods along with the tax guidelines of your state before filing tax returns. If you find the tax rules confusing, you can file them through professionals specializing in real estate accounting.

10. Avoiding internal audits and account reconciliation

Internal audits are essential to get a bird's eye view of your company's property accounting. Without frequent audits, you just have a vague idea of the expenses and taxes, the profits and losses, and you miss out on many details.

Auditing every month gives you a clear idea of the loopholes, which allows for timely intervention and correction. Regular financial check-ups keep you updated on the portfolios and throw light on the company's financial strength.

Similarly, real estate accounting is incomplete without reconciliation. No matter how careful you are, there can be missed entries and incorrect transactions. It is important to verify your accounting books and see that all transactions are reflected in your bank account.

Reconciliation can help in identifying bank errors and other mistakes that can cost you a hefty sum. Most property managers skip reconciliation as it is a complicated process.

To make it easier, you can choose accounting software that allows reconciliation. Though it can be time-consuming, sparing a few minutes every day to verify your bank transactions can be beneficial in the long run.

Bottom line

By implementing a solid accounting platform, you can minimize all the errors and speed up the process. Choosing user-friendly software with options built for real estate accounting is an excellent way to get started. If you have several tools that you love to use, you can integrate them seamlessly through KriyaGo.

How can KriyaGo help

KriyaGo's back-office accounting is one of the best in the industry if you plan on outsourcing. It is also more economical than keeping an in-house team of accountants. By choosing KriyaGo, you get access to expert resources and better software at lower costs. It also gives you more control over your finances while ensuring that your data is in safe hands.

Book a free consultation with a KriyaGo Advisor to know more!