Hurdles, mess-ups, and setbacks naturally come with running a property management business. It’s true: The only way to grow your business is to work freaking hard and learn from the uncomfortable mistakes you’re bound to make. Then one magical day, if you’re “lucky,” you’ll enjoy the fruits of success.
But what if you’re making mistakes without even realizing it? The truth is, no one is born knowing how to run a property management business, so let’s take a look at six common small-business money mistakes and how you can turn them around—or completely avoid them—and aim for steady growth.
Financial Mistake #1: Mixing Business and Personal Finances
In my coaching practice with newbies and sometimes not so newbie it isn’t uncommon for the property management business owner to sometimes pay vendors from their personal checking account or put personal money into an owner account to cover expenses since the owner has a shortfall in monies. In any business scenario, mixing personal and business finances is an accounting disaster waiting to happen. Property Management is different than most small businesses because we manage Trust Funds on behalf of a property owner. It isn’t OUR money. Not to mention, if you get audited you could lose your Broker’s License or at a very minimum get a severe fine.
Co-mingling funds is a No-No because when tax time rolls around, you’ll spend hours trying to separate transactions to figure out your true income, expenses, and deductions for your business. Doing taxes is never fun, but it’s even less exciting when you have to sift through receipts and bank statements before you even start plugging in numbers. If your ducks aren’t in a row, you could also easily miss deductions, overpay taxes, or pay interest and penalties for bad record-keeping or late filing.
Mixing accounts also leads to big problems like these:
- Cash-Flow issues if you use too much money for personal items and can’t cover critical business operations.
- Thinking you’re profitable when you aren’t such as co-mingling sales commissions with your property management business.
- An unprofessional image that hurts your reputation with customers, suppliers and investors—and lowers their confidence in how you run your business.
- Personal risk, like losing your Broker’s License, if you ever face legal issues or an audit.
- Trouble coming up with a fair asking price if you decide to sell your business, because you don’t have a clear picture of your true profit or loss.
Solution: Keep your business finances and personal money separate.
Simply put: Don’t use your business account to pay for personal expenses, and don’t use your personal money to pay for business stuff.
Set up separate high-yield savings and checking accounts for your business and pay yourself and your expenses out of that. Your tax accountant will thank you—and you’ll get so much peace of mind.
Financial Mistake #2: Going in Debt to Build Your Business
A common business myth is that you have to use credit to scale your business. We get it. The pressure is real to compete with the big dogs and make an impact as fast as you can. And so is the temptation to borrow money you shouldn’t to purchase big-ticket items, hire more people, and expand operations—all in hopes you’ll quickly turn a profit.
But here’s the thing: The borrower is always obligated to the lender. Whoever you owe money to has power and control you don’t have. Debt magnifies your mistakes. And you know what sucks more than a failed business deal or idea? Making payments on a failed attempt for months after it tanks.
Borrowed money kills your cash flow – which often kills your business. If you can’t generate profit quick enough to pay your loans, you put your business’s survival at risk.
Contrary to conventional wisdom, you can operate successfully without loans, credit cards or revolving lines of credit. How do I know? Because I grew my own successful property management business 100% debt-free except for the mortgage on my office building and that was paid in full within 6 years. Can you image the financial security that gave me! I could sleep at night. I could take advantage of opportunities. I could pay my team well and contribute to my community. You have options when you don’t have debt.
Solution: Operate at the speed of cash.
Remember: In the same way the tortoise beat the hare, slow, incremental growth beats getting in over your head in debt only to crash and burn. So, pay with cash—even if you have to scrape nickels from the couch or save up for big purchases. That could look like:
- Work from home or renting a coworking space
- Outsourcing services – vendors or use of VA’s.
- Buying used items – I got a 2-year-old top-of-the-line copier for free from a startup company that went bust. Saved 10K at the time.
- Making expensive purchases only when you need to (not want to), when you can pay for them with cash, and when they’ll end up making you money. Bought my commercial maintenance truck from the city for 4K.
Financial Mistake #3: Not Knowing Your Numbers
Business owners are warriors. They work long hours, fight the competition, and would storm hell with a water pistol to make their vision a reality. That is, until it comes to one classic weak spot—accounting. Many business owners would rather have a tooth drilled without Novocain than deal with their numbers.
Sound like you? I get it. You might be tempted to put your numbers into the hands of your bookkeeper or accountant and just forget about them—but that’s one of the biggest property management business money mistakes you could make.
Your bookkeeper or sketchy accounting system can mask money problems when business is fairly good. But as Warren Buffett warns, “You don’t find out who’s been swimming naked until the tide goes out.” When you don’t know how much money’s coming in and going out, you’ll end up facing problems like:
- Shock, embarrassment and strain when you have to lay off staff
- Crisis when financial emergencies happen (and they will)
- Inability to plan for purchases, raises and taxes
- Embezzlement
That doesn’t mean you have to do the accounting and bookkeeping yourself, but you do need to know your numbers.
Solution: Know your numbers.
You don’t have to handle the details of your company finances, but you do need to regularly look over the work of the person or people handling your finances. It’s also important that you:
- Spot-check payables every week and ask questions so the people managing them know you’re aware of what’s going on.
- Establish retained earnings/savings for emergencies and opportunities and know how to calculate them.
- Reconcile your books monthly. This is when you’ll review your profit and loss statement to understand what’s happened and use that information to project future income and expenses.
- Regularly review your budget and make sure it’s still centered on your goals.
- Have checks and balances on who opens mail, reviews, and signs off on owner statements, who signs off on vendor invoices and who can sign on bank accounts. No one person should have access to everything.
- Get a bond for your accounting team. This will cover your balances in your accounts and reassure your owner clients.
- Do a proactive audit of your accounting department before you get a notice from the Dept of Real Estate.
Financial Mistake #4: Making Big Purchases for All the Wrong Reasons
An all-too-common small-business money mistake goes something like this: You see that new, souped-up gizmo—say a truck for your maintenance business—and just have to have it. You tell yourself the purchase will make you look more legitimate, and you’ll even get a tax deduction to offset the hefty price tag and loan that straps you down to buy it now. The thrill is real—that is, until someone hits your shiny new toy and its value instantly nose-dives.
Though you may try to convince yourself you need the latest thingamabob to impress clients, increase productivity, and earn more profit, you don’t. Instead of throwing away tens of thousands of dollars for luxury items you don’t really need, what if you paid cash for modest versions of what you do need? You’d end up with more margin to grow your business!
So, when it comes to making business purchases, beware of:
- Overpaying for bells and whistles you don’t need or tools that don’t bring a return.
- Buying things purely for a tax deduction—that’s like trading a dollar to make 35 cents.
- Saying something is for your business if it’s really for personal use (when the IRS sniffs that out, you’ll lose your shirt).
Solution: Act your wage.
The most successful businesses wait until they have the cash on hand to buy nicer things. That’s acting your wage. No deal was ever made or lost, based on the couch in the reception area. That’s ego. So, operate your business with the resources you have. To do that, you should:
- Live on less than you make.
- Delay purchases until you can really afford them.
- Only buy things that you truly need and that will help you make money.
Financial Mistake #5: Not Paying Your Bills and Taxes on Time
Not only will late payments rack up extra fees and penalties, but no one wants to work with someone who’s a pain to collect from. When you pay late, vendors lose trust in you and don’t do their best to serve you. And when you can’t cover your tax bill, the tax man will come for you. He will always get paid, hitting you with steep penalties and interest and seizing your assets to cover what you owe.
So, what gets a lot of businesses in the bad cycle of late payments or no payments?
- Not knowing your numbers
- Borrowing funds to operate but never catching up on cash flow and profit to cover costs
- Operating without a budget
- Failing to hold back earnings to cover taxes
- Dipping into accounts that are meant to only be used for taxes and paying bills
Solution: Pay what’s owed by the due date.
When you stick to a budget, you’ll find it’s a lot easier to stay on top of accounts payable. Your budget helps you look and plan ahead. Then you won’t have scattered bills and scary late notices hanging over your head. Operating on a budget is offense number one, but here are some other ideas to keep you on top of due dates:
- Get out—and stay out—of debt.
- Plan big purchases so you’re ready to pay when they’re due. (That’s part of acting your wage too!)
- Set aside about 25% of your earnings to pay toward taxes quarterly.
- Treat your tax and bill-paying funds as untouchable—until it’s time to pay those taxes and bills. Have a separate account for this.
- Meet with a good tax professional to figure out your specific tax rate, plan and make sound financial decisions.
Financial Mistake #6: Focusing Only on Your Profit
Sure, you’re running a business—not a hobby or charity. Profit keeps your business alive and allows you to enjoy the fruits of your labor. But making money only so you can buy cool stuff and feel important leads to an empty life.
Don’t get so locked in on making money that you neglect the people side of your business—your team members, customers, and community. When you take care of them, they become evangelists for your business. And with the right perspective, the more money you make, the more fun you’ll have fulfilling your mission and the greater the impact you’ll have.
Solution: Be generous.
Remember, you’re blessed to be a blessing, so treat others the way you want to be treated. That includes creating margin to show extra kindness. For example:
- Spend less than you make so you always have overflow to give.
- Put line items in your budget to recognize your team members and be extra generous with your customers and vendors.
- Invest in your company culture and brand. How do you want to be remembered?
The six solutions you just walked through are 6 Profit Principles—aka your guardrails against money mistakes. When you use them together, you set a strong foundation for better money management decisions and a healthier financial margin to grow your business.
Adapted from D Ramsey
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