How more efficient real estate accounting helps firms navigate change and grow
Legacy and manual real estate accounting practices are a significant blocker for growth. Outdated systems and analog processes can make it harder for firms to profitably scale, upgrade capabilities and compete in the modern marketplace.
However, taking the time to think through how your firm handles accounting can help you unlock new growth opportunities. Implementing more effective accounting practices also helps mitigate the risk of knowledge loss during a transition and helps ensure that your team members’ talents are not wasted on cumbersome data collection tasks.
Keep reading to learn more about why efficient accounting matters for real estate businesses and how to start strengthening yours.
Why should real estate businesses care about efficient accounting?
For leaders busy trying to close deals or create new opportunities, accounting may feel like a back-burner issue at best. But it’s actually a key that can open the door to growth.
Consider a firm that aims to double its revenue over the next five years. An industry newcomer might assume that if successful, the firm would also automatically double its profits — but real estate veterans know that scale can often hamper efficiency, slashing profitability even as revenue goes up.
Efficient accounting and back-office operations help profitability match growth by giving you a better flow of information with which to make strategic decisions. Assessing your accounting practices and taking steps to upgrade also signals to institutional investors and family offices that your firm meets the higher systems standards that such investors expect from deal partners.
And if you’re beginning to look toward an eventual exit, you should note that streamlined accounting and finance processes and procedures can help generate M&A opportunities in addition to promoting a higher multiplier on your transaction. You could also strengthen succession planning by giving the next generation of leaders a firmer foundation to stand on.
However, you’re on the clock here. Firms that continue to rely on legacy accounting processes, procedures and technology will lose deals, investors and employees to their more innovative competitors.
What barriers to change do real estate firms face when upgrading accounting?
Many real estate firms have followed the same legacy accounting procedures, like heavy reliance on manual spreadsheets or disconnected systems, for decades. To make your accounting more efficient, you’ll need to overcome hurdles like resistance to change or lack of internal documentation around roles and responsibilities:
- Change management: If you’ve been doing things the same way for 20 years, you may not want to change — and your team may feel the same way.
- Lack of documented job duties: There may be a lack of clarity and documentation about how things actually operate, especially if you’ve had the same small team in place for a long period of time. Veteran employees hold a wealth of knowledge that may not easily transfer to new staff when retirement comes. This can hamper efforts to introduce new processes and technology.
- Capabilities and capacities: Firms typically have highly capable staff, but often lack the capacity to assess and improve accounting. This is especially common for smaller firms necessarily focusing limited resources on execution rather than operational efficiency. Leaning on an outside advisor to supplement internal capabilities can be helpful here.
- Hesitation: Faced with so much uncertainty around fast-changing technologies like AI and automation, leaders may also feel reluctant to consider making any big decisions around operations.
- Leadership confusion: Leaders may lack knowledge of how accounting actually functions within an organization. This can make it harder for leadership to see the value of improving performance.
How do real estate firms benefit from more efficient accounting practices?
More efficient accounting enables firms to make smarter decisions and deploy resources more effectively. This helps improve performance within the firm and opens doors for new deal partners and types of work.
- Make real-time business decisions: Efficient, modern accounting enables more efficient and accurate close processes. This gives leaders information to make real-time business decisions rather than making choices based on data that may be weeks or months old. These insights empower you to operate from a much more proactive, forward-thinking position.
- Mitigate risk of knowledge loss: Legacy accounting practices are often run largely based on the knowledge of your current accounting team. When those team members retire, you’ll lose valuable institutional knowledge. More modern accounting systematizes this knowledge, which makes transitions much less harmful to your organization.
- Make better use of talent: Stop wasting your team’s time and talent on manually gathering data in spreadsheets. Newer accounting practices allow your team to focus more on analysis, financial modeling and other higher-value work via workflows and automation that reduce manual, repetitive, and time-intensive tasks.
- Attract institutional or family office investors: More sophisticated investors expect potential partners to have modern, efficient operations and the systems in place to support that.
- Leverage technology and AI: Modern accounting systems allow you to integrate innovative technology into other aspects of your organization.
What action steps should real estate leaders take to improve their accounting?
Real estate leaders who want to make their accounting processes and systems more efficient and effective should start by conducting a full assessment of their current accounting function across people, process and technology. You need to understand how you’re doing things right now so you can identify how to improve.
You’ll typically benefit from working with an outside advisor during this process. An experienced advisor can help you assess your current accounting practices, make suggestions to strengthen your operations and implement solutions.
Look for an advisory firm that knows the real estate sector and brings both a deep understanding of accounting and the capability to implement systems upgrades within organizations.
Accounting optimization is not one-size-fits-all. What your business needs is specific to your unique organizational structure, operations, growth goals, people, technology and succession plan, which is why it’s essential you take the time to thoughtfully examine how you handle accounting today before making tailored upgrades to your systems.
How Wipfli can help
Wipfli applies our extensive real estate industry experience to help you implement modern, efficient accounting. Ask us to conduct an assessment of your current accounting practices and offer suggestions on how you can improve for smarter decision-making and more profitable growth. Start a conversation.
Let’s talk better real estate accounting
