Ximplifi and Turno Partnership

Choose the Right Rental Property Bookkeeping and Accounting Support

Ximplifi — Fri, 05 Aug 2022 23:43:35 +0000

How Accounting Supports Your Business

Accounting means different things to different people, but it is certainly not a one-dimensional department.

There is the operational and administrative, day-to-day bookkeeping for the business, which involves accepting deposits from guests, transacting management fees, and paying out to owners, as well as everything in-between. This is what most managers picture first when they think of accounting, but there is a second part that is equally important.

The second part of accounting addresses the long-term view of what all those transactions add up to, reflecting how the investment and strategy are performing in the bigger picture. This includes aspects of accounting that produce information for budgeting and planning.

Accounting Skills to Seek Out

It can be easy during the first few years of a startup for bad habits and patchwork processes to start seeping into your accounting department, especially if it’s being done by only one person.

One of the key internal control procedures for accounting is the separation of duties. This means that no one person should handle a transaction from beginning to end, for example, bookkeeping, deposits, reporting, and auditing.

Sharing responsibilities between two or more people or having co-workers review critical tasks can help provide some controls against errors or fraud. But you still need to have someone with the right experience and skills to know how to manage the accounting for vacation rentals in the first place.

Certification

Each state has different requirements for accountants to become certified to work, but there are also continuing professional education hours that may be recommended or required.

The most common certification is the Certified Public Accountant (CPA), granted by the American Institute of Certified Public Accountants (AICPA). This license is a versatile designation for accounting professionals pursuing a variety of roles.

There are many other certifications that can also indicate an accountant’s level of expertise in a certain field.

Industry Experience

Trust accounting for short-term rentals is a time- and labor-intensive activity that occurs on a monthly basis. When that is coupled with the unique operational aspects of vacation rental management, it is a special area of expertise that not many accountants have.

Someone who understands the industry of short-term rentals specifically will be able to help you make strategic choices and provide insights based on relevant experience.

Accounting Experience

The fast-moving nature of the vacation rental industry requires extremely detailed accounting.

For hosts with multiple ventures on the horizon, you may have multiple business models that all need accounting support as well. Therefore, you will want a professional on your team who can perform a range of functions to support your near-term and long-term interests.

Technology Enablement

Whether you choose to keep your accounting services in-house or select a partner to outsource, the person who is at the helm of your accounting should be an expert in the software that your business needs today. Not only that, but they must also be able to implement new technologies as the needs of the business change.

This requires them to stay involved in both strategic and operational aspects of the business and be able to scout the market for current technologies.

If you choose to hire outside accounting help, make sure you ask what systems they are certified to work on and what types of integrations they can support.

This will tell you if they have capabilities that go beyond what you could accomplish in-house.

Types of Accounting Support You Can Choose for Your Business

For vacation rental startups, starting with a good foundation of support in your accounting processes is crucial.

Bookkeeper

Running a one-person show can really only work for so long. Some hosts are better to start off with an employee who maintains the company’s books (sometimes called a bookkeeper). This is the person assigned to oversee all the financial transactions administered by the business and help you draw insights from financial statements.

Accounting Consultant

What about going outside the organization? Your accountant doesn’t necessarily need to be an employee. After all, there are professional accounting consultants that you can hire on a temporary or retainer basis if you want to go that route instead.

This may be a good way for new hosts with little accounting experience to get started without being responsible for the expense of a salaried, permanent staff member.

Accounting Firm

This arrangement might work for a few years, but remember, bad habits grow quietly. Without proper oversight and careful workflows, small errors in accounting records or late filings can have serious consequences for property managers and owners. As your operational workload increases, so does the risk for human errors.

If you are concerned about absolute accuracy and compliance, you may want to consider an accounting firm to completely outsource these functions. With outsourcing, you don’t have to gamble on whether or not someone will have the right combination of skills. Nor will you have to make tradeoffs for what is most important to you.

Selecting a firm can be easier than hiring an individual because you can set higher expectations. Refer back to those accounting skills we mentioned, and quiz your prospective firms before making a decision.

Moreover, choosing an outsourced accounting firm isn’t like working with other vendors — it’s a partnership. Successful outsourcing requires a good working relationship and trust between the firm and the client. You should never settle for services that don’t satisfy 100% of your needs. If they don’t have the complete package, keep looking.

Vacation Rental Accounting Support Through Software

As an entrepreneur, you will likely start off wearing many different hats for your vacation rental business. If you’ve studied accounting, or have your CPA certification, you definitely have an advantage. But as we’ve demonstrated, trust accounting is not a hands-off process.

One way to start lean and still run efficiently is to choose the right software and automate every manual process that you can.

This is where resources like VRPlatform come into play. These tools receive PMS data, such as management commissions, guest invoices, and payments, and automatically record the proper entries in the accounting system. They eliminate the manual process of re-keying data into your accounting system to make tasks more efficient.

Design Your Accounting Roadmap

Using the information discussed here, you can start planning out how accounting roles will be assigned for your business and how that structure might change over time.

Remember, good accounting and bookkeeping processes are not a box to check. Your success as a vacation rental host depends on your ability to make the right decisions for your business, and you can’t do that without accurate and organized finances.

The post Choose the Right Rental Property Bookkeeping and Accounting Support appeared first on Turno.

The Importance of Rental Property Accounting Software

Ximplifi — Sat, 30 Jul 2022 00:47:07 +0000

What Do Your Apps Have to Do With Accounting?

As a vacation rental manager, you will rely heavily on technology to list properties, book reservations, and maintain physical amenities. At any touchpoint where you either receive or remit payment, you are capturing financial data that is relevant to you and possibly the government.

To keep track of all these different sources of financial reporting data, you need a way to bring it all into one place where the funds can then be sorted, reconciled, and redistributed to the proper accounts.

This is where API integration comes in. APIs, or application programming interfaces, provide the basis for how different apps talk to one another and share information. API integration is important because it allows data to sync automatically between two systems, thus eliminating the need for a person to manually export, record, and track each dataset.

That said, even sophisticated apps can’t always integrate directly, but that’s where third-party integrations like VRPlatform can help. By providing a digital bridge between the PMS and accounting software, this tool automatically records transactions triggered by a reservation and directs funds to the right accounts.

Vacation rental apps that integrate help create a single connected system, which is a critical first step to being able to automate accounting processes like posting and updating guest invoices, posting batch deposits, management commissions, and more.

The Different Types of Vacation Rental Management Apps

If you go exploring the app market for vacation rental software, you will come across many different services, but there are a few in particular that you should be familiar with and understand the features included.

Each one of these technologies solves an important and time-consuming piece of the puzzle for vacation rental management. If there is a breakdown in how these apps work together, you will end up with islands of data and holes in your workflows that now have to be done manually.

Property Management System (PMS)

This is the software suite where all your property listings and reservations are centralized. There are more than 250 different property management software apps available, but some of the ones we recommend are Guesty, Hostaway, Hostfully, and Track.

Each one offers its own mix of customization, functionality, and customer support.

Accounting Software

This is the “brain” for all your business financial data. Using an Airbnb accounting tool allows you to pull in data that your PMS can’t, so you can track how much profit your business is actually generating once all the payments have been posted.

QuickBooks Online, Sage Intacct, and Xero are all examples of accounting solutions used by vacation rental managers.

Merchant Processors

These apps manage credit card transactions by processing online payments and delivering the funds to your financial institution. These include services like Stripe, Braintree, and Authorize.net.

Channels

Channels are your customer touchpoints. They include property listing sites like Airbnb, Vrbo, Booking.com, and hundreds of others. Your property management system should be able to integrate with your channels and aggregate booking information from all these different sites.

Property Care

Lastly, property care and maintenance apps allow you to manage the physical amenities of each property with cleaning, repair, inspection, and inventory services. Apps like Turno make it easy to ensure each stay is impeccable.

Other Apps To Consider For Your Vacation Rental Business

Beyond the operations of managing rental properties, as your business grows, you may have additional costs that need to be factored into your management earnings, such as employee benefits and payroll, mortgage or rent payments, and other company expenses.

Below are some additional areas of your business to consider when you build your vacation rental technology stack.

Online document storage: Online document storage software gives you the ability to attach receipts or communications to your transactions, saving you time down the road if you ever need to reopen a case. Two examples are Hubdoc and Receipt Bank.
Employee payroll, time-tracking, and benefits: These apps help you care for the heart of your customer experience: your team. Rippling and Gusto are two examples.
Expense tracking and reimbursement: How do employees get paid back for reimbursable expenses? Apps like Expensify are designed to make it easy for employees to submit receipts and set up approvals based on your rules.
Accounts payable: Paying vendors is never as easy as it seems it should be. Some payments are made online or in-person, and receipts could be a piece of paper or an email. Apps like Bill.com help businesses capture invoices, consolidate funds owed to outside vendors (accounts payable), and post payments in an organized fashion.
Lodge/sales tax: Finally, for vacation rental managers who take on the responsibility of filing taxes associated with their properties, MyLodgeTax by Avalara is a service designed to automate processes from licensing to filing.

All of these functions are essential to any growing business and can be done with or without technology — but we recommend with. Each function also involves transferring funds either into or out of your business, a sign that any apps involved need to integrate with your accounting software.

Integrating these systems and automating processes through them will not only help you save hours every day by doing fewer manual accounting tasks, but it will also pay dividends in the long run by allowing you to see the bigger picture and proactively find new opportunities for your business.

Choose the Best Vacation Rental Management Apps for You

From property management systems and listing sites to maintenance, accounting, and more, the desktop and mobile app market for vacation rental companies today is much more sophisticated than what it was just a few years ago.

This can be both a blessing and a curse. With so many niche options to select from at the start, it can be easy to suffer from “analysis paralysis.” You’re ready to go out and find the apps that you need, but what should you be looking for?

Ultimately, you need to assess what’s most important for your business and work within your budget. You will have different criteria for selecting an accounting software than a payroll system, but as we’ve emphasized here, you should especially look for apps that support integration with other related systems.

This opens the door for automation that can help you save time, reduce errors, and see updates in real-time as transactions are processed and tasks are completed.

The post The Importance of Rental Property Accounting Software appeared first on Turno.

The Importance of Good Airbnb Accounting Practices

Ximplifi — Fri, 22 Jul 2022 22:50:15 +0000

Leverage Value-Added Accounting for Scalable Growth

Before we get into the details, take a moment to think about your business. What do you love about it? What is your vision for the future? You probably didn’t mention anything about reconciling accounts or tracking down receipts, and that’s okay.

Unfortunately, many rental owners overlook the purpose and importance of implementing good Airbnb accounting practices until things have started to take a turn for the worse. Luckily, just by reading this paragraph you already have more knowledge to prepare you for a successful financial future.

The key is to treat accounting as an asset, not a liability. With liabilities, you typically seek to minimize them, avoid incurring additional costs, and hope they don’t turn you upside down. With assets, however, you nurture them, invest in capital improvements, and use them to generate positive financial results.

By choosing to take this “asset view” of accounting, you can begin to leverage the tools and processes discussed here to help your vacation rental business run more efficiently.

4 Accounting Pitfalls to Avoid When Running a Vacation Rental

Below, we highlight common accounting pitfalls that short-term rental hosts face and offer advice on how to make the right decisions for your business.

Pitfall #1: Not Following Trust Accounting Practices

If you are managing or planning to start a short-term rental property business, it’s crucial that you understand the concept of trust accounting. It might sound like a way for wealthy families to split their inheritance, but as a practice, it simply refers to managing money on someone else’s behalf.

This is especially important if you do not own the property you oversee. In this case, as an intermediary that helps owners list their dwellings and handles money from guests, your role is to ensure that owners receive the correct payments by handling their funds appropriately.

You might be wondering, am I required to do trust accounting?

Many states regulate the use of escrow accounts to hold advance deposits and monies held on behalf of owners. If you are not using separate escrow accounts to hold these funds, “commingling” of funds occurs and can result in heavy fines and even loss of a business license.

While state requirements differ, several require two escrow accounts, one for advance deposits and another to hold “earned rentals” between the time of guest departure and the time of payment to the owner and property manager.

While this tracking can be tedious, good trust accounting practices early on can safeguard your business from unplanned deficits and help you improve owner satisfaction with timely and accurate payments.

To ensure that you follow the proper regulations using the right systems, you should always consult an accredited accounting firm.

Pitfall #2: Only Using Built-In PMS Modules for Accounting

Historically, the belief has been that if you want good trust accounting and owner statements you have to choose a property management software (PMS) with built-in trust accounting functions.

The problem is those systems are not tried and true accounting systems, aren’t very flexible, and don’t provide much in automation functionality or integrations with other time-saving applications.

Ultimately, company managers should choose a PMS based on its performance on property management functions, not a tradeoff of accounting capabilities. Why not select the best service to drive bookings, create an attractive website, communicate with guests, integrate with other software, and manage your different channels?

Trying to get the equivalent of a hole-in-one for your business software solutions seems like a good way to reduce overhead, but it is not sustainable nor efficient if you plan to manage more than a handful of properties.

Remember, treat accounting like an asset. Select professional accounting software to handle your financial data, not a PMS.

We typically recommend QuickBooks for small-to-midsize companies or Sage Intacct for mid-to-large companies. To automate the transfer of data from your PMS into your accounting system, opt for a tool like VRPlatform™.

Pitfall #3: Not Handling Property Expenses Appropriately

It’s especially important to draw the lines between different operating accounts when dealing with property expenses, or money spent on behalf of a vacation rental owner.

Managers who don’t consistently use the same accounts for property-related expenses will find it very tedious to go back and determine what they are owed. It’s best to choose one account to pay for expenses on behalf of the owner.

Pitfall #4: Not Deferring Rental Revenue

A key concept of vacation rental accounting is that rental deposits received in advance of a guest’s stay should be deferred.

Until the guest has checked in or completed their stay, that money should be held in a “Rents-in-Trust” escrow account and recorded as a liability (deferred income) on the balance sheet until the date of the guest’s stay, typically in a “Rents-in-Trust – Rental Deposits” account.

The reason handling funds this way is so important is because it protects your company in the event that the guest cancels, shortens, or is otherwise granted a refund on their reservation. By holding the money outside of your company’s operating account until the date it can be transacted, you mitigate the risk of having to pay back money you may have already spent.

In your accounting workflow, you would use a rental deposit invoice on the date the deposit is received. On the date of the guest’s stay, you’d use a rental invoice that details the guest’s charges (rental income, cleaning fees, taxes, etc.) and log a negative rental deposit to reverse the initial entry.

Use Good Accounting Practices to Run a Successful Airbnb Business

More so than other types of real estate, Airbnb hosts must have nimble processes in place, primarily because of the sheer volume and frequency of the transactions they manage.

At a bare minimum you need to ensure every dollar received is held in the right account and the proper amounts are paid out to the right parties, but that doesn’t even begin to help you achieve your own financial targets.

If you manage less than five properties, you might be able to make do with low-tech, nose-to-the-grindstone accounting. However, manually tracking money that flows through your property management system while trying to earn your own company a profit is a cumbersome process that only gets more complex as you take on more business.

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A Crash Course in Airbnb Taxes for Hosts

Ximplifi — Fri, 15 Jul 2022 20:04:04 +0000

Vacation Rental Tax Legal Requirements

Disclaimer: This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.

You may know that you’re required to obtain a general business license to operate short-term rentals. But in some U.S. states, you may also be required to have:

A Real Estate Broker License
A Property Management License
Other certifications

If you are forming an LLC, your state may require you to appoint a registered agent to serve as the point of contact between your business and the state government. This person will be responsible for receiving and filing tax and legal documents for your business.

Some CEOs choose to designate themselves as their own registered agent. But you can also elect a registered agent service to take on these duties for an annual fee.

To find out what types of registration are required for your business, you should contact a local agency that can provide information about licensure in your state or country.

Tax Liability of a Property Manager vs Owner

Say you manage vacation rental properties on behalf of a separate owner. In this case, you are not required to report on the owner’s income from guests. Also, you don’t have to report the reimbursable expenses you pay to maintain their properties.

What you do have to pay taxes on is the income, fees, and commissions you collect from owners.

Applicable Taxes for Short-Term Rentals

So what types of taxes apply to vacation rentals? Depending on the jurisdictions governing your specific rental properties, there can be several kinds of taxes to consider. These include sales taxes and accommodations taxes that are often labeled as tourist taxes, occupancy taxes, and others.

Most commonly used, the term lodge tax broadly describes taxes collected both from guests and owners.

Income tax, value-added tax or VAT, self-employed taxes, and goods and services tax may also apply depending on the jurisdiction and how the property is managed.

Understand Your Jurisdictions

Taxes don’t only occur at the state or federal level, Therefore, it’s important to know the specific rules, processes, and rates that apply in your tax jurisdictions. These may be at city, county, state, or other levels. Online, you can browse state guides and additional resources about lodge taxes for each state.

Collecting guest reservations using a vacation rental platform like Airbnb or Vrbo may affect how you need to file lodging tax returns. Therefore, you will need to determine how taxes are being collected through each property channel and ensure filings are handled appropriately and on time.

You may be required to file lodging tax returns on a weekly, monthly, quarterly, or annual basis. Again, this is depending on the jurisdiction as well as the number of revenues reported. Understanding the deadlines associated with these requirements and being able to meet them is the only way to avoid late penalties.

These fines can add up significantly, especially for hosts with multiple properties. How much you pay and whether it’s a flat fee or an amount that increases over time will both depend on each property jurisdiction.

Other Tax Filings

In addition to calculating lodging taxes, you will want to include deductions in short-term rental tax filings to help reduce the amount of taxable income reported.

One of the most significant deductions is vacation rental property depreciation, or recovering the cost of the property over its useful life, which the IRS assumes is 27.5 years for residential rental properties.

To help you estimate these deductions, look for an online vacation rental depreciation calculator.

The 1099 Is a Property Manager’s Friend

If you serve as the property manager and do not own the property, you’re also required to report certain information to the IRS. This formation allows them to verify taxes owed by the owner you work with. It is reported on Form 1099, which must be issued to each property owner and any contractor or professional hired to work on a property.

As of 2022, the U.S. only requires a 1099 if a vendor was paid more than $600. One caveat to this is that if you hire a company instead of a contractor (for example, a cleaning company rather than an independent contractor), there is no tax reporting requirement. If an independent contractor was paid more than $600, it’s reported on Form 1099-NEC.

The deadline to submit 1099s to recipients is January 31st after the year being reported. The same documents must be furnished to the IRS by February 28th.

Avoid scrambling at the beginning of the year to get all this information aggregated, calculated, and distributed. Use accounting software that can automatically capture this data and help you complete the forms accurately.

Keep Your Financials Organized

Navigating state and federal tax codes can be complex for businesses that operate in multiple states or countries. Also, there can be confusion about what kinds of paperwork and information business owners are required to send and report on.

Before you can sit down and start paying taxes, you need to have all your financial information in front of you and easy to review. If you are doing any accounting entries manually, one error or typo could create a lot of work for you when taxes are due.

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