It is amazing how the attention to detail that we use in our personal finances is overlooked during work hours. Part of this might have to do with an agency issue. Most employees don’t get extra compensation for little things they do to help a company save money. Some of it might also have to do with the unsexiness of finding small ways to reduce costs and save time. A new marketing software might be the highlight of a meeting but the benefits might be nothing close to what can be saved by automating back office procedure like accounts receivable and commission management. In fact, according to APQC 62% of labor costs are created in the back office, so focusing on these, at times, boring details can return substantial gains.
This is the point that Michael Mullin made in a presentation at CRE.tech LIVE’s Future of Work Seminar presented by JLL last month during NY Real Estate Tech Week. He is president of IBS a company that has been providing technology solutions to property managers since 1979. They manage real estate companies IT and bill themselves as a providing CIO level insights for their clients. Mike’s experience working with some of New York’s best property managers has given him a ton of insight into the ways that a company can use little tricks to save money on operations. In my mind he is the closest thing commercial real estate has to a ‘points guy.’ Here are some of his tips.
Standardize your lease administration
According to Mike’s data, each lease takes about 2-4 hours of labor costs. When a lease is submitted it has to be organized, proofread, and inputted into an accounting software. These precious hours can add up, especially for large portfolios with high turnover. Obviously, spending some time and money on this ongoing cost driver can be worth the effort.
There are a few options. For bigger portfolios or owners with unique lease terms, it might be worth it to build a template system. If done right these templates can be filled out by the lessee and will automatically populate into your accounting platform. For smaller companies it might be more efficient to partner with companies like VTS or RDM, both of which can be integrated via APNs into an operator’s system of accounts.
Streamline commission management
“We are in a deals business,” acknowledges Mike. Each deal is different and they all have varying commission splits. Entering it into bills payable, tracking it, cutting and distributing checks. All of this can add up to about an hour and a half of work. A commission management system can help cut that in half. Companies like CommissionTrac can help automate the process and, for companies that do about 50 transactions a year, save about a week a year of time. What should you do with that “extra” time?
Mike has a few ideas:
Outsource check writing to speed up the accounts payable turnaround
With all the press on how automation is changing the world, this next stat presented by Mike really had us thinking. When it comes to delivering bills for accounts payable, 80% are still send through the U.S. mail. This postal lag time is one of the reasons that the average transactions takes about 48 days to complete. It also costs about $9 to move a bill through an organization from start to finish and around $7 just to write and send a check.
For big companies, the best solutions might be to invest in an automated check writing a mailing machines. These need huge volumes in order to be worth the investment, so most real estate companies use a service that will do the physical processing of checks. He has seen the time it takes for a company to complete a transaction go from the 48 days mentioned earlier to about 10 days with automation. Mike recommends AvidXchange and has an great case study to show exactly how much can be saved by paying someone else to do the busy work associated with accounts payable.
Take your accounts receivable online
“Most people want to be able to pay rent online but most people are not able to pay their rent online,” Mike said. By allowing renters to pay online it can accomplish a lot of valuable objectives. Payments get imputed faster and with less chance of error and tenants, get an unexpected perk. By catering to the growing number of people looking to max out their credit card rewards, thanks to vocal proponents like ‘The Points Guy,’ property owners can give their occupiers the ability to get points on what is possibly one of the most expensive single purchase a person or business makes in a given month, their rent.
The ability to use credit cards is especially important to the residential tenants. Here Mike tells us how one of his clients, Trinity Properties, partnered with Visa to offer them a discount on their transaction fee in order to bring processing fees to under 2%, making implementation much more feasible.
Small things add up to big savings
No matter what the latest tech article says, there is not one technology that will create a more profitable company. The true value is in creating a system of technologies that can create efficiencies in every part of the business process. Since most of the costs of a real estate management company are incurred in the back office, it makes sense to look for as many ways to automate the ways we run our business. By adopting useful technologies and using tips like the ones Mike dispenses, even smaller portfolios can be optimized in ways never before possible.