Why Trust Accounting is Crucial For Vacations Rentals
This is a guest post from Guesty Marketplace partner Ximplifi.
Vacation rental managers are really in the business of trust accounting. No matter what range of services they provide or how many properties they oversee, their fundamental role is to make sure funds flow from renters to property owners (and themselves) correctly. If managers need to get one thing consistently right, it’s trust accounting.
That’s good news and bad news. Good news: with a great system of trust accounting in place, a vacation rental business is on firm footing to succeed. But the bad news is that trust accounting can be tricky to set up correctly and draining to keep up with regularly. For managers that underestimate this obligation, accounting issues can cause frequent headaches for an otherwise prosperous business.
Key Challenges With Trust Accounting
Trust accounting has unique features that make it difficult compared to the bookkeeping needed for the average business:
- Don’t Co-mingle Funds – Best practices suggest using separate bank accounts for property owner funds vs. property manager funds. Managing multiple accounts only puts roadblocks in front of cash flow, though. Proper accounting often involves time-consuming, manual data entries and extra levels of oversight. And if those aren’t properly applied, it risks causing serious cash flow issues.
- Preserving Fiduciary Responsibility – As the party tasked with collecting rents and returning security deposits, the vacation rental manager or management company has a fiduciary responsibility to renters and owners. Meeting that responsibility requires high levels of transparency and accountability that only become harder to preserve as the business grows.
- Complying With State Laws – Every state has different rules for trust accounting. Failure to comply with these laws can cause a business expensive headaches. Trying to manage rental incomes from multiple states can be similarly frustrating. Keep in mind that even when trust accounting isn’t required by law, it’s always the best approach to handling vacation rental accounting.
- Know Your Cash Position – Perhaps the most important reason to use sound trust accounting concepts is so you have a sound understanding of your company’s financial position and performance. By co-mingling funds and not tracking advance deposits, management companies can quickly get a false sense of security of their cash position, as much of the cash in their bank isn’t theirs. This makes projecting and managing cash during seasonal downturns or times like the early months of the COVID-19 pandemic especially hard.
Trust Accounting Optimizes Your Business
Setting up your trust accounting can be tricky, but property management companies should understand they have options, including combining an accounting software with a vacation rental property management software like Guesty.
Option 1: Guesty integrated with Quickbooks or Xero – For many property management companies, this is a great option. Guesty has a great user experience with a channel manager integrated to the top OTAs, a multi-calendar to see all reservations in one place, revenue management solutions, and also boasts robust sales and marketing tools. And, when integrated with Quickbooks or Xero, users get the best of both worlds: using Guesty, the property management platform they know and love, combined with easy-to-use accounting software. When using this approach, we recommend two Quickbooks or Xero accounts to facilitate proper trust accounting (one each for the trust and operating company).
Option 2: Guesty integrated with Sage Intacct – While Quickbooks and Xero works for many, for enterprise-size companies, they often fall short. Sage Intacct’s multi-entity functionality, rich dimensions and custom reporting means you get custom owner statements and in-depth reporting of your operations. Accounting for the trust and operating accounts in the same system provides numerous efficiencies, while statistical accounts allow for KPI tracking (i.e. ADR and RevPAR). In addition, customizable user-based dashboards give managers and their teams real-time insight into their financial performance. Sage Intacct requires more upfront and ongoing investment, but many large and enterprise vacation rental companies achieve a great ROI. For enterprise property management companies using Guesty, there isn’t a better option or solution on the market today. You will clearly win on meeting owner’s fiduciary expectations in an efficient way, while also achieving better financial insight and success.
Trust accounting for vacation rentals is complex and often requires significant time investment. Explore Ximplifi’s managed accounting services, software consulting and VRAccountant that integrates Guesty with Quickbooks, Xero or Sage Intacct in order to make your trust accounting operations easier.