November 19, 2024 - In the fast-paced world of real estate, where margins are tight and strategic decision-making is critical, property owners often turn to third-party management companies to handle the day-to-day operations of their properties. The idea is appealing—less time spent managing tenants, vendors, and financial details, and more time focusing on growth. However, when it comes to accounting, a gap often exists between what property managers provide and what real estate owners require for financial reporting purposes.

Here are a few common areas where these gaps become apparent:

1. Inconsistent financial reporting
   While property managers are skilled in overseeing daily operations, financial reporting can sometimes lack the depth and accuracy that real estate owners expect. Financial statements may be missing key supporting schedules or intercompany adjustments that are critical for the owner's overall portfolio. Moreover, property managers may follow different capital expenditure (CapEx) policies than those required by the owners, leading to discrepancies in the categorization and timing of major expenses.
2. Limited visibility into intercompany transactions
   A significant challenge for property owners occurs when multiple entities are involved, such as when there are intercompany loans or shared expenses across properties. Property managers often do not have the access or ability to reconcile these transactions accurately because they are working in isolation from the owner's broader financial ecosystem. As a result, owners may find themselves having to step in to make sense of intercompany loan balances or to ensure that proper eliminations are recorded.
3. Different accounting practices
   Third-party property management companies often follow their own set of internal accounting policies, which may not align with the more sophisticated requirements of real estate owners. For example, many property managers focus on cash-based accounting for immediate operational needs, while owners typically require accrual-based reporting in accordance with GAAP or IFRS standards. This can result in reports that are unable to provide a full or accurate picture of the property’s financial performance and meet reporting requirements.

Bridging the Gap: How Outsourcing Services Can Help

Real estate owners need to perform a thorough review of monthly packages from property managers to ensure the reporting is accurate and in line with internal accounting policies. Many real estate owners are turning to outsourcing solutions to perform this review and fill the gap between property manager reporting and the final, complete set of books. At Citrin Cooperman, we offer outsourced finance and accounting services that provide owners with the level of expertise and support needed to ensure accurate and timely financial data. These services can be tailored to meet the specific needs of each company, regardless of size or complexity.

By outsourcing accounting functions, real estate companies gain access to top-tier talent and specialized expertise without the burden of managing an in-house team. Outsourcing offers a range of benefits, including:

• Enhanced flexibility: Outsourcing allows real estate companies to scale their accounting support as needed, whether for ongoing day-to-day operations or for specific roles like a CFO, controller, or financial planning and analysis (FP&A) specialist on a temporary or permanent basis.
• Improved financial reporting: With a focus on optimizing financial reporting, outsourced teams can help bridge the gap between property managers and the complete financial picture required by owners. This includes handling more sophisticated functions such as adjustments to conform with GAAP/IFRS, intercompany eliminations, and reconciling owner bank accounts and loan balances.
• Cost efficiency: Outsourcing reduces overhead costs associated with hiring and training in-house accounting teams while ensuring access to highly skilled professionals. This enables owners to receive the financial insights they need, while still focusing on core business activities.
• Better decision-making: Outsourced accounting services ensure that owners have timely and accurate financial information at their fingertips. This empowers real estate professionals to make informed decisions that support growth and strategic initiatives, without being bogged down by the details of accounting tasks.

The Citrin Cooperman Business Process Outsourcing (BPO) team provides a comprehensive suite of outsourced accounting services, offering solutions from CFO level down to senior accountant roles, and can be customized based on the needs of the property owner. Citrin Cooperman’s BPO team’s specialized knowledge of the real estate industry means that owners can rest assured that their financial reporting will not only meet compliance standards but will also support the long-term success of their business.

While third-party property management companies bring many operational benefits, their accounting services may not always meet the full financial needs of real estate owners. By recognizing these gaps and leveraging outsourcing solutions like those provided by Citrin Cooperman, owners can ensure their financial reporting is accurate, timely, and aligned with their long-term goals. Reach out to Ryan Moore or your Citrin Cooperman advisor to learn more.