Spend management in property management: the perfect partnership

A focus on the priorities within the industry, and how spend management solutions for property management can fulfill requirements to attain success in the market.

Property management is one of several industries that has had to adjust rapidly to economic difficulties over the last two years. Although these companies have been accustomed to managing multiple sites across multiple locations—ranging from single-family rental homes to various types of commercial properties—the challenges of lockdown, social distancing, curfews, self-isolation, and other restrictive measures, as well as the move to remote working and, more recently, inflationary pressures, have necessitated drastic changes in business processes.

While site managers and maintenance managers are largely based at the various properties they oversee, a great portion of the administrative work they would have usually carried out at various central offices, has now had to be done remotely.

In particular, all aspects of the procure-to-pay (P2P) process, usually managed by various departments at the office, have had to pivot to maintain business continuity during times of uncertainty. This is an area in which companies that utilize cloud-based spend management solutions for property management have been able to thrive.

While there are several property management software solutions available, having a dedicated spend management software solution allows you to focus on controlling your direct and indirect spend—this empowers you to remain compliant and report accurately to your investors, all while preventing maverick spend and cutting costs. Software that incorporates all the essential functions within the P2P workflow, provides complete control and visibility over spend, and seamlessly enables mobility and agility for remote work, gives property management companies a truly competitive edge.

How do industry priorities tie in with spend management?

In the 2022 State of the Property Management Industry Report, published by Buildium®, Propertyware® (both RealPage companies), and NARPM™, the respondents (property management companies across the top 15 metros in the USA), listed their top ten priorities for 2022 [1]. The first three priorities that respondents found critical to their companies’ success included focusing on residents, growth, and efficiency.
With only 27% of property management companies in the USA managing their own investment properties, 38% managing the properties of other investors, and the remaining 35% of companies managing a combination of their own and other investors’ properties [1], investor satisfaction in the management of their properties is paramount to this industry. This reflects the fourth and fifth priorities in the report, namely clients, and profitability.

This article unpacks the top priorities for 2022, and illustrates how spend management solutions for property management can help property managers achieve their goals in terms of these priorities.

Property management: 2022 priorities

Residents

Rental income from tenants or residents—the most crucial aspect of generating funds for your business. Considering this, tenants or residents are rightfully seen as a top priority for property managers during 2022. If residents are happy, they will continue to occupy properties in your portfolio. If they are not satisfied, they are more likely to find property elsewhere that is more suitable to their needs.
In the recent blog post, Maximizing Investment Property ROI, by All Property Management, the authors listed that two out of the three main steps to follow for success in property management are to provide residents with their most desired amenities, and to keep up with property maintenance [2].

Giving tenants what they want

The availability of preferred amenities is an important yardstick by which residents judge how satisfied they are with a rental property. Making a property more appealing to a tenant will involve investing money, for example in installing more cabinetry or putting a gym into an office building or having a swimming pool or other recreational facility added to an apartment building.

Having control over this type of capital expenditure (capex) requires managing complex approval structures and cost allocations, not to mention the creation of project budgets and ensuring that purchase orders (POs) are generated against specific buildings within the portfolio.

If your company uses an effective spend management solution for property management, meeting residents’ requirements becomes a streamlined and efficient process:

• Spend management solutions are set up to work for multi-company or multi-building, multi-location product management businesses, whether your portfolio consists of five properties, or 500.
• Budgets can be set up per financial year, cost allocation structure, and cost allocation segment—including division, department, project, location, account, and sub-account.
• Dedicated capex purchase workflows within the software provide audit trail capability apart from purchase requests for regular operational expenditure. In addition, custom fields such as asset ID or insurance number, and checkboxes for upgrades and claims, provide added automatic distinctions when analyzing spend.
• Complex approval structures are greatly simplified through cost allocation approvals, with approval flows associated to specific cost allocation structures for approval routing on capex requests or purchase requisitions—only approvers within the necessary structures will receive automatic alerts to approve any requisitions submitted.

Maintaining the properties in your portfolio

Expenditure for maintenance, repairs, and operations—or MRO spend—is an integral part of indirect spend when it comes to ensuring that your tenants are occupying buildings that are both in good condition and adhere to local health and safety compliance regulations. Responsible MRO spend also saves you money in the long term, by circumventing maintenance disasters.

Whether you need to organize scheduled upkeep such as landscaping activities or replacing HVAC air filters, or respond to service requests from tenants, spend management solutions can assist you in keeping residents happy, by providing you with key features out of the box:

• Create purchase requests on-the-go, via a spend management app on your mobile device.
• Upload your existing catalogs to the Catalog service, with your negotiated rates from regular vendors.
• Connect directly to the interfaces of online retailers such as Amazon, via the PunchOut service.
• Online tooling and automated workflows can handle high volumes of transactions and enable visibility over high volumes of ad hoc spend.
• Utilize pre-approved vendors with all relevant details saved to the spend management software for easy ordering.
• Order materials quickly and remotely, as your spend management solution automatically generates and emails purchase orders directly to vendors after requisitions are approved.
• Keep up to date with order progress and carry out purchase order revision, if necessary.
• Associate costs to a particular tenant/building/unit and identify billback costs if needed.

Growth

According to LetHub, an AI-powered leasing automation platform for property managers, the property management industry is rapidly growing, with a yearly rate of growth of 2.5% over the past five years. Last year alone, the industry generated a total of $88 billion in revenue [3], despite the global pandemic. Market Research Future reports that the property management industry is expected to reach revenues of $21.4 billion by 2025, with a 7.3% compound annual growth rate (CAGR) between 2021 and 2027 [4].

Growth in terms of adding properties to your portfolio, diversifying your portfolio, and employing new team members to cope with the additional workload, should indeed be your focus in this industry, as your successes translate to profit.

LetHub mentions five macro trends that has enabled this growth, based on the industry pivoting to a technology enabled property management landscape. One of these trends is, of course, the evolution towards a future driven by technology.

Property management technology, colloquially known in the industry as prop-tech, enables property management companies to allow for valuable growth by letting the technology handle the tedious or routine tasks of daily operations. In fact, in LetHub’s industry trends report, of the 15 trends in prop-tech from 2020, the top two were technologies that manage the accounting and payment functions of property management companies.

With a spend management solution for property management providing your company with control over your spend, seamlessly integrating with your ERP or accounting system, and managing the entire procurement workflow, from requisitions and quoting, to approvals, invoicing and receiving, your company has a crucial software solution that is scalable and allows for expansion.

A spend management solution not only takes care of the mundane and previously manual tasks carried out by your purchasing team, it also provides an intuitive, cloud-based interface that any new team members can easily be trained on. On any device, at any location, worldwide.

Efficiency

In a recent report by iPropertyManagement, an online platform providing a knowledge hub with resources for all aspects of property management, investment and real estate law, roughly 2,000 property managers in more than 50 cities self-reported that growth and efficiency were the two top priorities out of seven [5]. An impressive 45.1% of respondents conveyed an aspiration for their companies to be more efficient. With the streamlined workflows, smooth integrations, and a move to an entirely paperless system of requisitions, approvals, and invoicing that spend management provides, the P2P cycle within organizations becomes highly efficient. Time and cost savings provided by spend management solutions drive both efficiency and accuracy, as human error is also drastically reduced. While only 11.2% of respondents indicated that technology is a top priority for them in this study, the authors state that industry experts are urging property management companies to invest in new technology to maintain a competitive edge—including cloud services, such as cloud-based spend management solutions with associated mobile apps.

By utilizing spend management software, your organization remains highly competitive within the industry, and, with more visibility over spend and greater control over budget leading to cost saving, your return on investment is rapid, leaving valuable funding available for company growth.

Spend management software increases productivity, as well as empowering employees to be more mobile and agile. This, in turn, can improve response and completion times of on-site tasks, positively impacting resident retention and revenue.

Clients

ManageCasa, a property management software provider, lists five of the most bothersome types of expenditure: emergency repairs, maintenance services, financing, taxes and fees, and turnover costs. For property management companies, their clients—investors in the properties you manage—are ultimately responsible for covering the cost of three of the five spend categories above [6].
Your company will invoice property owners for repair and maintenance work, as well as for certain taxes and fees they are responsible for. Clients will benefit from your company having a spend management solution in three ways—reporting and analytics, auditing, and compliance.

Reporting and analytics

Spend management solutions provide analysis reporting for requests, purchase orders, and invoices—all with the capability of downloading reports as CSV or PDF documents. With this functionality, you no longer need to scan multiple documents from various sources; all reporting is available for immediate download and is easily emailed to clients.

With multi-company setup for each organization, you can pull various reports (spend by vendor, for example, or spend categorized according to requisitions, orders and payments) for each building that you manage. This way, you are able to identify units or buildings with the highest cost against lowest revenue and analyze which expenditures have caused the greatest cost for clients.

As Mason from ManageCasa states, “ensure you don’t have to manage things with spreadsheets and paper tickler files—that’s too old-school and your time is too valuable and costly”.

Auditing

Most clients will request a copy of your audit reports at some point in time. Spend management solutions make having the auditors over a breeze, with specific auditor roles for viewing all transactions, as well as detailed histories and audit trails of all P2P operations. With these dedicated auditor roles, transparency, and visibility over spend within your cloud-based solution, auditing can even be done remotely—a convenient characteristic for companies to have these days, preventing unnecessary delays in your annual auditing process.

Compliance

Propertyware, in their article on spend management and standardization, points out that reporting and visibility drive compliance, which is essential to any property management company’s purchasing structure [7]. Non-compliance can lead to fines and penalties for both property managers and owners alike, leading to losses in profits as well as damage to your reputation.

Compliance takes many forms in this industry, all governed by various local and national statutes, industry accountability and standards; the most important categories of which are financial compliance, and physical property standards and maintenance.

Financial compliance, specifically regarding accounting, is generally regulated by the State Real Estate Board, the State Tax Board, and the Internal Revenue Service (IRS) [8]. Spend management solutions can directly integrate with your accounting software or ERP, ensuring that your bookkeeping and reporting is robust enough to meet regulatory compliance requirements.

When it comes to physical property standards and maintenance, landlords are held accountable for several regulations around habitability and safety. Laws surrounding these regulatory requirements include those governed by the State Real Estate Board, local and state ordinances, the Americans with Disability Act, local fire departments, and the Occupational Safety and Health Administration.
Using spend management solutions to accomplish the entire P2P process in your company with visibility and transparency over spend practices, greatly enhances compliance with these regulations.

Profitability

And ultimately, we reach the most important priority for property management companies and their clients: profitability. The bottom line is, that your bottom line matters. Preventing rogue spending, mitigating fraud risk, maintaining up-to-date budgets per location and per building unit, and providing effective decision-making capabilities are only some of the benefits to using a cloud-based spend management system, with all P2P structures managed within a single, unified platform.

With the reduction in purchase-related complexities translating to massive cost reduction and the rapid return on investment your company can enjoy by utilizing a spend management solution, the financial savings will enable you to have more working capital to invest back into your property management company. What this means is that managing your spend on a daily basis via a spend management solution actually allows you the opportunity to spend on aspects of your property management business that matter, in the long term.

How Fraxion’s spend management solution can support your journey to success in the property management industry

For organizations within the property management industry, managing your portfolio efficiently and ensuring profitability are vital to the growth of your company.

Manual, repetitive and time-intensive procedures will blunt your competitive edge in a market where companies are pivoting rapidly to meet changing demands, and may eventually result in stunting your forecasted growth.

Fraxion is a leading spend management solution worldwide, with several customers in the property management industry. Our industry experts have honed their skills in the market, and can advise you on the best practices in spend management tailored to suit your company’s specific needs.

To find out more about Fraxion’s solutions that drive property management procurement strategies and efficiencies, feel free to reach out to our team for spend management advice, or request a custom demo that addresses your company’s specific procurement needs.

References

[1] Buildium; Propertyware; NARPM, “The 2022 State of the Property Management Industry Report,” Buildium, a RealPage Company, Boston, 2022.
[2] All Property Management, “Maximizing Investment Property ROI,” All Property Management LLC, Martinsville, 2022.
[3] LetHub, “Property Management Industry Trends 2021,” LetHub, Victoria, 2021.
[4] Market Research Future, “Global Property Management Market information by Deployment, by Components, by Application and Region – forecast to 2027,” WantStats Research and Media Pvt. Ltd., New York, 2021.
[5] iPropertyManagement, “Property Management Industry Statistics,” iPropertyManagement, Chicago, 2021.
[6] Mason, “12 Good Ways to Reduce your Property Management Costs,” ManageCasa, San Francisco, 2022.
[7] Propertyware, “How Spend Management and Standardization Can Help Decrease Expenses,” RealPage, Richardson, 2014.
[8] H. Peake, “Technologies to Simplify Property Management Compliance,” Rentec Direct, Grants Pass, 2021.