How Property Managers Can Manage Cash Flow
Positive cash flow is critical for maintaining the health of any business's operations, and that certainly includes property managers. This particular type of business has the unique challenge of relying on tenants to come up with money for what is likely their largest monthly bill. This can lead to a lot of late payments that have a negative impact on cash flow. Following are some tips for managing cash flow that should ease the financial pain.
Forecast on a regular basis
One of the main things you need to do to manage cash flow is to forecast it regularly. Use accounting software to do so, and generate reports so that you can see your current situation, and what it is likely to be in the future based on the data available. This way you can be prepared for slowdowns in cash flow.
Take vacancies into consideration and minimize their impact
According to Amanda Maher at Buildium, it's important for property managers to mitigate the impact of vacancies when managing cash flow.
"Often, novice investors will forget to include vacancy in their pro forma," she writes. "They wrongly assume that because a property is fully occupied now, it will remain fully occupied throughout the year. Even long-term tenants leave from time to time. Mitigate the impact of vacancies by including at least a marginal vacancy rate in your annual budget. In the event that you don’t have a vacancy, even better! This will boost your cash flow projections, and it can also be used to offset any unexpected costs."
Make sure payment policies are clear
You may be willing to negotiate payments with tenants in order to keep them around. In fact, it may even help your cash flow to be flexible if it means the difference between receiving payment and not. However, your rate should be set, and so should your late payment policy so that the tenant is clear on exactly what they owe each month and how much more they will owe if they do not pay on time.
Maintain a cash reserve
Set up a business savings account specifically for use as a cash reserve for when cash flow is down. Drawing on this will help you continue to operate efficiently without the threat of late payments and vacancies severely damaging your business.
Have properties inspected each year
Inspecting a property on a regular basis will help you find issues that need attention currently or will in the near future. This means you will be able to better prepare for expensive repairs that will impact cash flow rather than being blindsided by them as a result of not catching them before it's too late. Having an idea of the maintenance ahead will help you prepare your budget.
Apply for a business loan
Apply for a business loan when you are cash flow positive and you will have another pool of money to draw from when you need it to help keep cash flow from becoming problematic. It's best to apply before you really need the money so it's already there and you don't have to worry about the possibility of being denied during desperate times.
Know when to adjust your contracts
Before it is time to renew a contract with a tenant, do your research and determine if you should be charging more based on rates from competing property managers. On the flipside, it may even be worth coming down on the price for an ideal tenant who frequently pays on time if it means keeping them around longer.
Don't make everyone's rent due at the same time
If you collect rent from a variety of tenants, it's a good idea to create varied payment schedules so that not everyone pays you at the same time. When payments aren't made on time (or at all), or if vacancies occur, your cash flow will be able to better weather the storm if due dates are scattered throughout the month.
Cash flow can be a major pain for a property manager, especially if tenants are less than reliable. But if you keep the above tips in mind, it can be much more manageable.