Is your real estate empire growing? Whether you are watching your properties stack, growing a syndication, or starting a development project, most real estate decisions come down to the finances. From watching cash flow and evaluating the return on investment of different properties to uncovering capital available for the next investment, finances are an integral component of running a successful real estate company. In this article, we’ll cover everything you need to know about outsourcing finance for real estate companies, including the tasks that finance professionals take on and key indicators that hint it’s time to pass the reigns.
Just as real estate developments need a solid foundation, financial operations require the same. If you find yourself constantly falling behind on the finances of your property management company, it might be time to hire an outsourced finance professional.
Outsourced Real Estate Accountant vs Finance Professional
Before we get into how an outsourced finance professional helps you add financial efficiency to your organization, let’s differentiate between accounting and finance.
Real Estate Accountants
A real estate accountant manages the day-to-day transactions in your business. This might include categorizing expenses, completing bank reconciliations, and preparing internal financial reports. Accountants can also take on the role of tax accountant, preparing tax returns and projections.
Real Estate Finance Professionals
Real estate finance professionals use the reports created by accountants to develop insights. This includes evaluating the return on investment of different properties and helping you make high-level decisions. Real estate finance professionals can also help accountants with many of their roles, including accounts payable and cash flow management.
What Tasks Does an Outsourced Finance Professional Handle?
Outsourced finance professionals in the real estate industry handle all the backend reporting and finance tracking in your organization. This includes improving the real estate financial efficiency of your organization as a whole. Let’s go through a few more of the tasks that an outsourced finance professional takes on.
Accounts Payable
The first area an outsourced finance professional handles is accounts payable. They monitor the payments flowing out of your business, including mortgage payments, insurance, property taxes, and maintenance. By tracking these items, your finance professional watches for any unusual changes or high costs. For example, if maintenance costs are usually $10,000 per month and they jump to $25,000, your finance professional will look into the discrepancy.
Cash Flow Management
Cash flow management is a crucial component of running a property management business. After all, too high of tenant turnovers and vacancies can erode your cash flow and make it difficult to pay your bills. Outsourced finance professionals oversee your cash flow management function, determining the optimal time to pay bills and making sure your checking account always has sufficient levels. If they notice consistent cash shortages, your finance professional will suggest ways to improve cash flow, such as by taking out external capital or evaluating the return on investment of remodeling projects.
Financial Reporting
Financial reports contain important information about the current financial health of your real estate company and its profitability. The internal financial reports from your accounting system can’t always be relied on without oversight. For example, transactions might be posted to the wrong accounts, or property purchases might not be properly entered. Your finance professional reviews your financial statements for accuracy. With up-to-date and accurate reports in hand, you can make more informed decisions to scale your portfolio and increase profitability.
Turnover and Eviction Finances
Turnovers and evictions are some of the not-so-fun aspects of owning real estate. Before you can issue an eviction notice or pursue legal action against a former tenant for damages, you need to have numbers. How many months behind is the tenant? How much does it cost to repair the damage done by the tenant? These are two questions that an outsourced finance organization can help you answer. With data in hand, you can increase your chances of a successful eviction or lawsuit.
Growth Consulting
Real estate finance professionals understand the intricacies of the industry. This makes them your go-to expert any time you need consulting on growth or finance-related decisions. For example, should you finance a new property purchase through a bank loan or through private investors? What type of property would reduce risk in your portfolio? What is the average return on investment from each property? What percentage of tenants pay on time? These are all questions that can be answered by your outsourced finance professional, helping you scale your portfolio.
Financial Modeling
Another task an outsourced finance professional handles is financial modeling. What is the cash flow potential of a property at different purchase prices? How will net income be impacted if occupancy drops to 75%? Financial modeling projects future outcomes to help you manage risks and maximize the favorability of outcomes. Outsourced finance organizations specialize in financial modeling, helping guide you through different decisions.
Discover more services and a step-by-step guide in our Outsourced Accounting Mini-Guide.
Signs It's Time to Consider Real Estate Finance Outsourcing
Knowing when it’s time to outsource your real estate finances can be difficult, especially as there’s no one-size-fits-all approach. Let’s go through a few of the key indicators that it’s time to outsource.
Making Decisions is Difficult
If you find yourself struggling to make decisions, it's time to bring on a real estate financial professional. This could be decisions on scaling your portfolio, determining when it's time to sell a property, or how to improve profitability. In fact, a recent study by Deloitte found that 42% of companies outsource to gain technological capabilities and streamline processes. Your outsourced finance professional can put together financial reports and develop detailed analyses to help you make the most informed decisions.
Data Constantly Falls Behind
Another key indicator is data that is constantly falling behind. If your accounting software is behind by months at a time, it’s time to bring on an outsourced finance professional. Your outsourced finance professional ensures that your data is constantly up to date, giving you real-time access to information. This might include making adjusting journal entries to your financial statements or ensuring accuracy in your payable and receivable ledgers.
Real Estate Financial Efficiency is Low
Successful businesses prioritize efficiency. If it takes you weeks to gather internal reports or issue statements to lenders and investors, you need an outsourced finance professional. Your internal team members might be swamped with the day-to-day management of your business. You don’t want to add to their burden by requesting time-sensitive reports. An outsourced finance professional comes prepared with the necessary policies and procedures to infuse efficiency into your business, keeping everyone happy.
Scaling is a Priority
Businesses don’t scale by chance. In fact, it takes consistency, dedication, and transparency to scale a real estate business effectively. If scaling your real estate company is a priority, you can’t forgo the expert insight an outsourced finance professional brings to your team. Outsourced finance professionals uncover inefficiencies in your operations, helping you improve your bottom line and scalability potential. For example, your outsourced finance professional might uncover that switching insurance providers can result in an upfront 20% cost savings. With this extra cash, you might be able to close one more real estate deal that year.
What to Look for in a Finance Professional
The right finance outsourcing organization will provide your real estate company with a mix of expertise and value. Let’s run through what to look for when onboarding an outsourced finance professional.
Checklist: Everything You Need to Do Before You Start Outsourcing
Education
Outsourced finance professionals will have some formal education background. This is commonly a bachelor’s degree in finance. However, some finance professionals take education a step further and obtain a master’s degree. When looking for an outsourced finance professional, inquire about their educational background.
Credentials
Alongside education, it’s important to look at the credentials your outsourced real estate professional has. This could be a Certified Financial Planner (CFP), Chartered Financial Analyst (CFA), or a Certified Management Accountant (CMA) designation. These credentials demonstrate that the outsourced finance professional has gone through the examination process, stays current on continuing education, and abides by ethical standards.
Experience
At a minimum, your outsourced finance professional should have some experience working in the real estate sector. The real estate industry has a unique set of rules and regulations, which is why it’s important to have an outsourced professional who is well-versed in the requirements. To verify the experience of the outsourced finance professional, you can look at past customer reviews or ask for references.
Availability
Although an outsourced finance professional is beneficial year-round, there can be certain times when their help is more needed. For example, if you purchase most of your properties during the summer, you might not need an outsourced finance professional in winter. Inquire about the availability of your outsourced finance professional. In many cases, outsourced professionals can cater to your needs, especially during busy times.
Cultural Fit
Outsourced finance professionals work alongside your existing team members to develop insights and help your business maximize profitability and growth. This means you want to select a professional that meshes well with your organization. Inquire about the preferred communication methods. If your team likes to talk on the phone, but the outsourced finance professional prefers email, you could face communication barriers.
Getting Started
Outsourcing your real estate finance function is a great way to free up time in your busy schedule without sacrificing on transparency in your business’s financial health. Whether you are looking for a professional to handle high-level financial modeling and decision-making or someone involved in the day-to-day operations of your real estate business, outsourcing is a great solution. For more information on how our team can handle your real estate finances, contact us today to schedule your free consultation.
