Accounting Lymphatic System

The Invisible Guardian that Keeps Property Management Finances Alive and Well

A 7-Part Accounting Detox Plan

Detoxing your body takes more than one green smoothie, likewise, cleaning up your trust accounting takes multiple steps. Over the next seven posts, we’ll break down how the lymphatic system mirrors trust accounting and why maintaining a clean system prevents financial disasters.

Accounting Lymphatic System. Photo credit: Rebecca Sage

UP FIRST: 

⚙️Prevention Mode: Automated Background Processes

We’re kicking things off by exploring how trust accounting automations act like the lymphatic system’s prevention mode – catching issues before they cause real damage.

Stay tuned, because by the end of this series, your trust accounting will be healthier than ever! 💪🏼

Today we’re going to talk about how automating your accounting software can make or break your trust accounting processes.

🕴🏼The Body: The lymphatic system runs automatic processes in the background, moving fluid and nutrients without conscious thought.

💸Accounting: Your system automations – like assigning the correct GL for vendors, handling receipt rejections, and applying late/NSF fees, work in the background to prevent errors before they happen.

Accounting Lymphatic System. Photo credit: Rebecca Sage

Automated Functions

Expense Management

Like nutrient delivery, a detail as simple as assigning the correct GL code (e.g., Maintenance: Fence Repairs for your best fence repair contractor) ensures that when bills come in, they’re routed properly without manual intervention

Receivables Fee Automation

Automatic tenant fees reduce manual labor, ensuring that the system reacts instantly, just like the lymph nodes defending against an infection.

Receipt Rejections for NSF Payments

When white blood cells identify threats, your system auto-detects failed payments and pulls the funds, keeping the system balanced.

“We don’t wait for an infection. We’re the Immunity Booster.”

— Rebecca Sage, Master Trust Accountant

When Your Trust Accounting Needs a Kidney Detox

Ever think about your kidneys? No? That’s okay – most people don’t. They’re the quiet overachievers of your body, filtering waste, balancing fluids, and keeping your lymphatic system running smoothly. 

But when your kidneys stop working… Toxins build up, your immune system weakens, and pretty soon, everything starts to break down.

Now imagine that happening in your trust accounting system.

• Tenant Deposits? Mishandled.
• Owner Disbursements? Out of balance.
• Liabilities? Misclassified and festering like unchecked toxins.

Your kidneys filter out waste to keep the lymphatic system functioning, proper trust accounting processes clean up financial errors, ensuring that everything stays balanced and compliant. Ignore those warning signs for too long, and you’re looking at financial sepsis – AKA audits, fines, and sleepless nights.

Accounting Lymphatic System. Photo credit: Rebecca Sage

Warning Signs of Kidney Failure

When your kidneys aren’t functioning properly, toxins build up, fluid levels become imbalanced, and the system struggles to keep up. The same thing happens in trust accounting when processes aren’t followed, transactions are misclassified, and compliance is ignored.

Let’s take a closer look at the biggest warning signs that your accounting system might be headed toward financial breakdown.

1.💧Mismatched Tenant Deposits: Swelling with Errors

In your body, when the kidneys fail to regulate, swelling (or edema) occurs, causing discomfort and long-term damage if untreated.

In trust accounting, mismatched tenant deposits create a similar effect.

• Tenant security deposits should always match the cash in the tenant trust account.
• If a tenant’s deposit is recorded incorrectly – either under the wrong GL, applied to the wrong property, or treated as income instead of a liability – it’s like fluid building up in the body.
• Over time, these errors create imbalances in the trust account, swelling with inaccuracies that can lead to major compliance violations.

Left Untreated:

• Auditors catch the inconsistencies
• Owners question disbursements
• Trust account balances may not three-way reconcile

💡Pro Tip: Regular “fluid checks” (aka monthly reconciliations) prevent errors from piling up and ensuring liabilities match the cash held in the trust accounts.

2.❤️Unbalanced Owner Disbursements: High Blood Pressure in the System

When your kidneys fail to regulate blood pressure, it rises uncontrollably, putting immense strain on your heart and arteries.

In property management accounting, unbalanced owner disbursements create the same kind of pressure.

• Owner Draws should be carefully balanced against available funds and suppressed fees.
• If management fees, tenant receipts, or maintenance costs are not properly accounted for before disbursements, the result is a cash shortfall.
• When disbursements are pushed through without verifying cash availability, it’s like cranking up the pressure in an already stressed system.

Left Untreated:

• Overdrawn trust accounts
• Inability to cover future vendor payments
• Emergency cash infusions that disrupt the entire financial ecosystem

💡Pro Tip: A thorough management fee reconciliation before owner draws helps ensure that disbursements align with available trust balances, reducing system pressure.

3.🚨Ignoring Compliance Issues: Pain You Can’t Ignore (Until You Need Dialysis)

When your kidneys start failing, your body gives you warning signs – pain, fatigue, and swelling. Ignoring these signs can lead to the need for dialysis, or worse, complete system failure.

In trust accounting, ignored compliance issues are the silent warning signs that can lead to catastrophic consequences.

• Improper tenant deposit handling, failure to maintain sufficient reserves, or making incorrect GL classifications may seem minor – until they trigger a state audit.
• By the time compliance issues are flagged, the damage is often too deep to resolve quickly.
• Correcting years of errors is like needing financial dialysis – a painful, time-consuming, and expensive process to clean up the mess.

Left Untreated:

• Risk of losing your brokerage license
• Potential legal consequences and fines
• Loss of trust from owners, tenants, vendors and auditors

💡Pro Tip: Just like regular health check-ups can prevent major illnesses, routine internal audits and compliance reviews can catch small issues before they become financial emergencies.

Why Prevention is Always Better Than the Cure

🎯Catching these warning signs early saves time, money and your reputation.

• Mismatched tenant deposits? Caught during monthly reconciliations.
• Unbalanced disbursements? Prevented by consistent fee reconciliations.
• Compliance issues? Identify with regular system audits and SOP reviews.

Want a Detox for Your Trust Accounting?

Healthy kidney maintenance helps prevent failure, keeping your accounting system clean with regular reconciliations and internal controls saves you from a world of hurt later. Don’t wait until your system needs dialysis.

Call SFL today to give your trust accounting the detox it deserves.

👉🏼Because keeping your accounting “kidneys” healthy is way easier than trying to replace them! 💪🏼

Saving the World One Property Management Company at a Time ®