How to Master Financial Management in Your Property BusinessThe HMO Roadmap

Are you managing the finances of your property business effectively? This is so important, because if you’re not keeping track of your finances, you can’t measure how well your business is actually doing and performing.

Ignoring your finances can also lead to numerous problems that’ll eat up your time and energy. And as a property investor, your time is really valuable, so you need to figure out how to streamline your work and reclaim your time.

Read below or listen to the full episode on The HMO Podcast to learn about my simple solution that can help you master financial management in your property business!

The Importance of Financial Management

Financial management isn’t the sexiest part of HMO investment, but managing your money the right way can help you make more money. It’s essential to stay on top of things like avoiding late payments, being aware of all of your expenses, understanding your bottom-line profits and planning for tax bills.

The more tenants and properties you have the more complicated and difficult it can become to manage your money… Just think about the number of bills you have for every property from utility bills and council tax to maintenance, and then you have all your rental income, payments and deposits to manage!

You might also have other bits and pieces happening, and that’s before you even think about a refurbishment and the costs associated with that. There’s so much from a financial point of view to keep track of. And the only way you can accurately assess the performance of your property business is by managing what’s going in and out.

So, I’ll share my simple process for financial management that you can implement into your own property business! Once you have it set up, it’ll only take 5 to 10 minutes per week. This will give you great oversight on your finances at any point in time and will allow you to make informed decisions and change as you progress throughout the year.

At the end of the week, month and year, everything you need to see from a financial point of view will be incredibly transparent. Your accountant will then be able to log in and see all of your information and data in one place.

1. Invest in Accounting Software

To effectively collect all of your financial data and manage it, start by investing in an accounting system like Xero, which is really easy to use and great for small businesses. Through this type of accounting software, you can:

Track income and expenditure
Generate, record and automate invoices
Manipulate a chart of accounts
Compare things side by side
Benefit from real-time financial reporting

2. Connect Software to Your Bank

Once you have chosen an accounting software, connect it to your bank. It’ll then be able to pull in your bank feed, including statement lines every single day.

With bank statements, there are often random transaction names, and we might not know where things have come or gone from, especially if you have a lot of transactions. But with Xero or other accounting systems, you’ll actually have the name of the supplier and a description with it, and you can utilise expense categories.

3. Create Chart of Accounts

There may be certain ways you want to categorise different income and expenditure. Xero comes with a pretty standard chart of accounts, so you might want to create your own account codes.

When your bank feed comes in, whether it’s an income or expenditure, it can then be reconciled against either a payment you’re expecting to make or a payment you’re expecting to receive, and you can then expense these to certain categories.

All of these income and expenditure lines will then get allocated to the relevant account codes. That can tell you exactly where you’re spending your money and receiving your money from. This will allow you to see how much you spend in different areas every month.

In Xero, you can look at your profit and loss (P&L) statement for any given month and even go into a specific account code. This is helpful to manage what’s going on in your property business at any point in time as things tend to drift and costs can creep up! Become a member of The HMO Roadmap to gain access to the chart of accounts I use for my property businesses.

4. Track Expenses & Reconcile Transactions

In Xero or other similar platforms, everything that needs your attention from a financial management point of view can be managed in one place… And this includes any invoices, bills and payments.

Instead of having to go through your receipts every month, you can take a photo of receipts after you pay for something, upload it in the app and it’ll get expensed for you! You can then review key reports like P&Ls, cash flow statements and VAT returns.

Once a week, look through all of your transactions. Get each reconciled according to an invoice that you’ve made a payment against or rental income that you’ve received. If there’s something in the system and it’s expecting that payment, it’ll automatically reconcile against it. You can then quickly check that the details are right.

The more times you do this and the more similar payments you reconcile, the more automated the software will become. It’ll start to recognise certain payments. If you then look at the reports, it’s all in real-time, and you can see what the performance of your business is at that exact point in time.

5. Automate Processes

There’s a number of ways that you can speed up the automating processes even more! A quick example is you can utilise a system like Hubdoc or Dext, which allows you to forward an invoice straight to one of these systems that will then appear in Xero as a draft bill. This could be invoices from your contractor, decorator, electrician or when buying items online.

The system is very clever and it’ll recognise that this is an invoice from a specific company for a certain amount. You can then quickly check if the details are correct and match the payment in the bank, and it’ll be reconciled. Xero also integrates with other software programs, including COHO, our partner HMO property management software.

6. Search Invoices

How often do you need to try to remember where you bought something that’s failed or broken? Through Xero, you can type in something like the supplier or product to search through your invoices and receipts. You can then find out exactly where you got it and the product spec, and you can then easily make a call if you need a replacement or whatever it might be.

If you have an issue and you’re trying to go back through all your paperwork, it can take you hours. The more properties you have, the more these sorts of issues will happen. So, this will save you so much time and frustration!

7. Track Different Properties

Let’s say you have a Special Purpose Vehicle (SPV) and you have several properties in it with income and expenditure going out of the same bank account…

Xero allows you to track each property or a refurbishment separately. You’ll then be able to do all of your reports by property and full reports across your entire business or some of your properties. So, you can get really granular, allowing you to know exactly what you’re spending for each property and where!

8. Decide If You’ll Use a Bookkeeper

Once this is all set up, a bookkeeper could help you manage this. If you have a simple business with very few transactions, you don’t necessarily need a bookkeeper to do this… All the legwork is in collecting the invoices and getting them into the system, but all of that can be automated through Xero.

However, if you have a lot going on and a lot of transactions, it might be helpful to have some bookkeeping done for you. There are lots of professionals out there who specialise in this. They’ll just need to understand how you want things to be reconciled, what account codes you use and what needs to be expensed against what.

Get Started Properly Managing Your Finances Now

If you haven’t invested in an accounting system yet or are just starting a property business, now is the best time to do this! Start by having a play around with Xero, Sage or another accounting software. It’ll probably take you about an hour to set it up and start to get the hang of it. Once you’ve spent a month or so doing this, it’ll be so easy!

Even with a decent sized portfolio, you won’t need to spend more than 10 minutes a week keeping on top of your financial management, reconciling everything down. And there might occasionally be one or two invoices or payments that don’t quite match that you need to investigate.

You’ll then have all of your reports on hand, and you’ll know exactly where you’re at every month. This will help you free up time to focus on the things that matter the most – finding deals, providing your service to tenants and keeping on top of refurbishments.

If you want to really level things up, sign up for The HMO Roadmap today. That is where you’ll find everything you could need to start, scale and systemise your HMO property business, and you can even download helpful resources, like my chart of accounts! And if you have any questions or advice to share, join us over in our free Facebook Group The HMO Community.

About the Author:

Andy Graham is the founder and the lead trainer at The HMO Roadmap! He is also the co-founder of The HMO Mastermind, writes as a regular columnist in different magazines about a variety of HMO topics and is the host of The HMO Podcast! Follow Andy on Instagram!