Key Takeaways
- Transitioning from general accounting software to property accounting software often becomes necessary when the property portfolio reaches a critical mass.
- Onboarding to a property accounting software system comes with hidden complexity that can leave sponsors understaffed if not planned for in advance.
- Prior to kicking off the implementation process, it is important to understand the onboarding requirements and the data that needs to be gathered from the current accounting system as well as other sources.
- It is a best practice to audit the general accounting software system to confirm completeness and accuracy prior to migrating data to the new property accounting software environment.
Deciding When to Implement Property Accounting Software
As the sponsor of a private equity real estate fund or syndication group engages in the direct management of portfolio assets, deciding when to transition from general accounting software to property accounting software involves more complexity than many realize.
General accounting software is commonly used by retail investors and smaller private equity firms upon formation because it is cost-effective and can serve as an adequate solution when managing a small property portfolio. However, as the number of properties under management increases and the investor base becomes more complex, sponsors typically come to need features that general accounting software does not offer.
Tenant management
Property accounting software supports tenant management by centralizing and automating processes like lease tracking, rent collection, and communication. It ensures accurate billing by incorporating lease terms, such as base rent, escalations, and percentage rents directly into the invoicing workflow. Many systems also include move-in and move-out workflows, which enable scale by automating information gathering and the collection and disbursement of security deposits. Additionally, tenant portals integrated with the software can streamline communication and provide tenants with access to historical payment and maintenance requests information.
Property-Level Financial Reporting
Property accounting software is designed to facilitate detailed property-level financial reporting by segregating financial data for individual assets within a portfolio. It allows the sponsor to track income, expenses, and other financial metrics specific to each property, which enables accurate performance analysis and compliance with lender or investor reporting requirements. These systems typically include tools for automating common processes like rent roll management and CAM reconciliations, ensuring that financial statements reflect the unique operational details of each asset.
Maintenance Request System
Modern property accounting software includes tools that track and manage maintenance requests, integrating them with the broader property management process. These features allow tenants to submit maintenance issues directly through a portal, where they are logged and assigned to the appropriate personnel. The software tracks request statuses, schedules tasks, and documents any associated costs, linking them to specific properties or units for accurate financial reporting. This centralized approach can improve response times and provide clear records for both operational and accounting purposes.
Understand Onboarding Requirements
Every property accounting software provider has a unique set of onboarding requirements, and it is critical for the sponsor to obtain the requirements early in the process because there will be manual effort involved in gathering the information needed to transition to the property accounting system.
Collaborate with the Software Support Team
When implementing property accounting software, the software provider likely employs a support team, fully equipped to assist throughout the process. This team must understand your business and use that information to recommend system settings, bank structures, and help you stay ahead of potential pitfalls. They also understand the data required for import.
Gather Required Data…In the Correct Format
At the outset of the onboarding process, the support team will provide a series of templates designed to streamline data collection. Much of the data can be pulled from the current accounting system, but other information is required to set up properties, tenants, owners, and maintenance request history. The sponsor is responsible for gathering the data and formatting it according to the specifications of the property accounting software provider.
Audit General Accounting Software for Accuracy and Completeness
The audit of the general accounting software is a project-within-a-project that should be completed before any data is loaded into the property accounting system. This is meant to mitigate the risk of loading inaccurate or incomplete data into the new system.
Verify Transaction History for Completeness and Accuracy
Before migrating, review past transactions to confirm they are complete and accurate. This verification helps avoid post-migration discrepancies and ensures historical data will accurately inform future financial analyses and reporting within the new software.
Reconcile Bank Accounts
Reconciliation of bank accounts is another critical step. Ensuring all accounts are up-to-date and balanced will reduce the risk of errors carrying over into the new system. By doing this, sponsors can also spot any missed transactions or irregularities before they become entrenched in a new platform.
The Implementation Process
While the property accounting software support team will handle the bulk data uploads, there are critical elements that must be addressed by the sponsor in order to complete a successful migration.
Chart of Accounts: Adaptation and Mapping
A comprehensive review of your chart of accounts is essential when moving to property accounting software. The goal is to ensure the structure aligns with the software requirements and adequately supports internal and external reporting. Sponsors should consider reorganizing or renaming accounts from the general accounting software as necessary, and it may be necessary to create new accounts to better suit property-level accounting.
Expect to Perform Some Manual Work
The property accounting software support team can handle many components of the onboarding process, but the sponsor will be responsible for some of the most critical items. Any chart of accounts updates and mappings will fall to the sponsor. Similarly, gathering data from legacy systems can be extremely time consuming and many sponsors struggle to complete this in a timely manner. Unfortunately, data quality issues are often uncovered through this work.
Finally, many property accounting software tools require the sponsor to manually settle transactions, even after historical data has been uploaded. Until this is complete, historical receivables and payables will not display as cash transactions.
Final Thoughts
Transitioning from general accounting software to property accounting software is a significant step for growing private equity real estate sponsors, but it can address the need for specialized features that general accounting software does not offer. While the onboarding process presents challenges, such as data migration and system configuration, there are steps that can be taken to streamline the process. By understanding the onboarding requirements in advance, auditing existing data for accuracy, and collaborating closely with the software support team, sponsors can ensure a smooth transition. With proper preparation, the move to property accounting software will provide a solid foundation for managing an expanding portfolio and allow for continued growth.
Lexcraft Advisors is a fund administration provider that serves middle market real estate investment funds and syndications, typically with equity under management between $15 million and $150 million. Our team takes pride in providing general partners with reliable fund administration solutions often reserved for large, global investment firms. To learn more about our services, schedule a complimentary meeting with one of our Managing Partners.