By Alex J. Narcise
Special to Real Estate NJ
The way companies work changed fast because of the COVID-19 pandemic, sending them scrambling to learn how to manage a distributed workforce and quickly transition to more automated processes.
But, aside from enabling a distributed workforce, automation has much broader advantages for businesses. It can help with cash flow forecasting and modeling, make it faster to close the books and reduce accounts payable costs among many other business benefits.
And yet, a recent survey we conducted with CFOs found, overwhelmingly, that real estate firms are not embracing automation in their accounting processes or are using it piecemeal across different tasks — thus not seeing the full advantage. Respondents reported that they still use complex manual methods to manage accounting processes, usually involving the effort of multiple people, extensive data entry, people resources and time.
Wiss Manager Brian Burte, who specializes in introducing accounting tech to clients, added: “We found that the COVID pandemic caught many businesses off guard and caused tremendous stress. For example, our survey indicated that 63 percent of respondents have been reliant on an entirely manual process to send checks in response to invoices.”
Perhaps more surprisingly, a full quarter reported not using automation for internal cash forecasting or budgeting, an indication that a surprisingly large number of businesses lack even the most basic strategic financial analysis to support their success.
One company that recently embraced account automation is a Wiss client, Continental Properties. Howard Rappaport, principal at the firm, said, “We tend to proceed very incrementally, and we don’t normally embrace technology quickly.”
But as the company continued to add more properties to its portfolio, the paperwork circulating around the office exponentially increased. Stacks of paper were moving back and forth from department to department. Meanwhile, Rappaport was frequently traveling outside of the office among properties in various locations while checks were getting backed up in the office.
The company decided to implement Yardi to gain the ability to process rental checks electronically. It also automated accounts payable using AvidXchange. Once the company gained more visibility in its accounts payable, it could easily track and address any billing discrepancies.
“The way we operate is that we’re too incremental about things,” Rappaport added. “We try to vet everything six different ways. We treat every dollar like it’s our last dollar, so we tend to move too slowly for our own good and we tend to sometimes not have the bias toward action that we need to have.”
What Continental Properties implemented was the first step in automating an accounting system. Scanning checks for remote deposit is a basic and easy method that saves a large amount of time and aggravation. Remote deposit capabilities have a number of business benefits. It speeds up your cash collection cycle, which helps with your cash flow and liquidity. It also assists with fraud prevention and efficient use of staff time and increases your options for banking, since you need not be limited to your local area in seeking out a financial institution that offers the best, most personalized services.
The next step in automating your accounting is budget and forecasting. In the mid-market segment, we often hear business owners say they make decisions based on what they see in their bank account at any given time. In doing so, they probably aren’t accounting for outstanding checks that haven’t yet cleared or digital payments that will hit the account in coming days. This approach limits their ability to make strategic decisions.
Companies looking to get the biggest bang out of their automation spend should also look at cash forecasting, which is one of the most basic and straightforward forms of business tracking and analysis. Weekly cash flow forecasting can be useful and makes it easier to update during each analysis. It is important that your cash flow model is customized for your particular business. For example, one business may collect receivables every 30 days, while another might collect every 90 days. If 30 days is normal in your industry, applying a model suited for a 90-day industry would fail to identify issues with collecting your receivables on time.
Finally, real estate firms looking to save some money using automation should consider automating accounts payable. You likely have to pay an accounts payable staff person to enter the invoices manually. This means paying probably $40,000 to $60,000 for salary, plus benefits and overhead, which can easily add up to $80,000 per year. You can realize massive savings by using a service like Bill.com or Concur to automate the process. Yet 69 percent of our survey respondents report continuing to do this process manually.
Real estate firms need to understand that remote work and automation have benefits and are the future. While, hopefully, the pandemic will happen just once in our lifetime, it has opened the eyes of many business leaders who realize they need to be better informationally and strategically equipped to deal with uncertain times. Automation can provide them with anything from a small edge to an advantage, depending on their level of adoption.
Alex J. Narcise, CPA, is the partner-in-charge of the Real Estate and Construction Services Group at Wiss, specializing in all areas of accounting, audit and tax for family-owned real estate businesses. In addition, Alex represents various institutional investors. Alex’s passion is advising clients on business issues and working through tax saving opportunities.
