Latest / Hospitable Hosts / Understanding Trust Accounting for Short-Term Rental Businesses with Clearing
Transcript
- Miles: Hello and welcome to today's episode of the Hospitable Hosts podcast with me, your host Miles from the Hospitable Marketing Team. Today I'm speaking with Ashley Hagel from the Clearing team. She's a customer success manager there. Clearing is a software that helps with trust accounting and automated bookkeeping tailored for property managers. And today we're talking about scaling your trust accounting and financial reporting from spreadsheet to software and when a tool like clearing becomes useful to you. So if you enjoyed today's episode, please don't forget to like, share, and subscribe on your favorite podcast platform. Let's get started. Okay. Thank you so much for joining us, actually. Thank you for being here today. Ashley: Yeah, thank you, Miles. I'm I'm really excited to be here. Miles: Great. so obviously today we are talking about clearing and a lot to do with spreadsheets and scaling. and I think really the crux of today's conversation is when does you know using a a spreadsheet for your short term rentals accounting and kind of reporting, when does that break? you know, at what point does it get too complex or have too many properties that you know you really have to get into having a proper tool to kind of manage all your porting and accounts. Ashley: Yeah, absolutely. Yeah. I think I think it really comes down to complexity more so than a unit count, right? It's not necessarily there's like a magic number of as soon as you hit this unit count, you should no longer be in spreadsheets. I think spreadsheets can really be useful as you're kind of getting up and running and you're kind of figuring out how complex your finances are gonna be for your business, but it's really gonna come down to How you're running your business, but also where you're located, right? Some states have very complex rules and regulations behind trust accounting. And so even if you are just starting with a couple, like you might want to just go ahead and hit the ground running with something more sophisticated that's going to help you have it set up the right way. But if that isn't your case, or if you are just kind of starting as like an owner operator and you really just need to keep track of your basic finances and kind of what do you have coming in versus your expenses going out, a spreadsheet might be able to carry you for a while. I think that when it comes to true trust accounting when you are managing other people's money, when you're managing for other properties, the The the spreadsheet's not necessarily going to understand who that money belongs to. And I think that's an important Miles: Yeah. Ashley: part of trust accounting is you need to understand that all of the money that you have doesn't actually belong to you. It belongs to other people and how much of that money belongs to one person versus another. And as soon as you s kind of start to have that complex situation happening and you have all these transactions for different properties and different owners in different situations, that can get really hard to track in a spreadsheet. I've been there. Miles: Yeah. Ashley: I've I've done that and you know we're human too, right? At the end of the day. So if you're doing Miles: Mm. Ashley: things manually in a spreadsheet, it's really easy for a human error to happen. So I don't think it's necessarily like a unit count. I think it's complexity and how your business is run and set up and and then you kind of take it from there. Miles: Nice, okay. And you already touched on trust accounting there. maybe you can give us kind of a basic definition of what actually it means in practice for a property manager and what essentially is the compliance risk if it's done wrong. Ashley: Yeah, absolutely. Yeah. So trust accounting at its core is that you all not all the money in your account is your money. And so depending on the compliance of where you are, you might actually be required to have a separate trust account. And even further than that, depending on where you are, you might be required to have a specific type of account. But typically most states just require that you have a separate deposit account for those funds. And really trust accounting is the the practice and understanding of knowing who that money belongs to. Because as you have these deposits come into that account, it's gonna be owed to the owners, it's gonna be owed to a tax authority, to it could be security deposits that you owe back to your guest. and of course, like your management payout. So it really is made up of different stakeholders, right? That all kind of have a piece of this pie, if you will, that is the trust account. And so the practice of trust accounting is tracking and understanding who all of that money belongs to and how much of that money belongs to each person. And that's where the compliance really comes in because you do really need to have in a lot of places like an audit trail to track back. where that money came from, how you got to this result that you then paid out to this person. so yeah, I think at its core that's really kind of like the the fundamental definition of of trust accounting is you're being trusted with other people's money and you need to handle it responsibly. Miles: Nice. Awesome. And then yeah, you obviously mentioned there it's kind of a requirement in in a number of tax authorities in the US. obviously just for any listeners internationally, it's kind of can be a compliance you know, risk in around the world basically. So it's kind of something that you need to think about and check with kind of local regulation if trust account is a process that you have to be following as well and reporting on too. always good to just kind of check your local authority for that information. Ashley: Absolutely, yes. Miles: Good stuff. so kind of talking about you know, following that kind of chain of property managers and and kind of reporting to owners, what are you seeing are some common mistakes that people using kind of a manual owner statement process make and when they're you know trying to report to owners and and kind of do some auditing on kind of the process and the the money that has been transferred? Ashley: Yeah, absolutely. I think One thing that I noticed or like that I've even experienced myself is is traceability, right? So if you have Miles: Mm. Ashley: an issue that happened and now it's you're six months down the road and it gets brought up by an owner, or maybe you do get audited, or maybe you do have to submit something for compliance reasons, and all of a sudden you're like, wait, this number's wrong. And I actually don't know why. It is very difficult and time consuming to trace that back in a spreadsheet. It could be something as simple as a typo on a number, you know, you could Be meaning to type 80 and you type 800, you accidentally add an extra zero, and that can throw off your entire sheet. So yeah, I think that's where mistakes could it can just be a simple human error, right? But it's spreadsheets can't necessarily talk to the different things and the different reconciliation. parts of the process to know that you didn't actually make that mistake. And that's where I think a sophisticated software can really lend a hand and and help you catch those things before they become a big problem down the road and then you're spending hours trying to find it. So Miles: Yes. and so obviously at the start I kind of went straight into questions for you. I think I've got to give you an opportunity to kind of talk about clearing and what you guys actually do. hospice will obviously has its own reporting built in. where does that stop being enough and where does a manager actually need clearing to step in? So maybe you can give us a bit of a brief on what it is that you guys do exactly and where that divide happens, I guess. Ashley: Yeah, absolutely. yeah, so clearing, we are a financial and trust accounting software built specifically for property managers and in the short term rental industry. And so we really help automate the process of doing your trust accounting. so that's everything from automating your bookings and your bank feed and really tying those funds back together to reconcile and even taking it further to reconciling your transactions, automating your categorization. Really the the whole purpose is to give back as much time to the property managers while also simultaneously giving them the confidence that their finances are accurate and within compliance. When it comes to kind of growing into that, I think it really comes down to the complexity of your business. And also the compliance that you need to maintain depending on where you're located. So again, this does tie back to kind of what you were saying earlier. Like it's really important to understand what you have to do depending on where your business is based out of. but yeah, when it comes to growing into something like this, I think you kind of do end up graduating in a way from whatever process you currently have, whether it's spreadsheets or whether you're doing it in your PMS or doing it in hospitable, maybe you get to a point where It does get a little bit too complex. And you do have some really complex customizations that you have to do with your rules or your taxes or things like that that maybe a more sophisticated software could really lend a hand on. So yeah, I think it does tie back. Like we've kind of the the theme has kind of been not necessarily about the size, but more about the complexity and your business individually. Miles: Okay. And you obviously said that it's not about kind of the the number of units, but is there ever an instance where the pro sorry the the business and the property count is too small that you kind of suggest to people that it's probably too early to work with us? You know, if someone with one property is looking at clearing, does it make sense for them to be considering using you guys, or is it kind of like a bit too much software and solution for one property? Ashley: Yeah, you know, I think I think it really depends, right? Because if you have a situation where it's you just have your one property that you're managing for yourself or one other person, yeah, you might not be ready yet and and that's totally fine. but if you know that you're in a area or state where you're one, planning on growing and two, does have really complex compliance rules, sometimes it's a lot easier to get everything set up when you're only at a couple units and then you know how to do everything the right way and it makes growing so much easier. So no, you don't necessarily have to, especially if you're if your business and your compliance is really simple, but I we also do see people that just have a couple and they just they really just want to start the right way. Like I've had conversations with some property managers that don't even have their first property yet and they're like I just want to understand how to do this right from the beginning. so that way I don't make a mistake as I grow. And so I think it also comes down kind of like to personality as well and kind of what you want to do. Miles: Okay, that sense. And you know, you've obviously then talked about kind of complexity of setup being the kind of the trigger, I guess, for you know, using something like clearing. what's typically the first sign that you see that someone's probably outgrowing their current setup and and maybe you know the native tools in their PMS isn't enough for them? Ashley: Yeah, I think a couple things are one is Complexity depending on their state and what they have to report on, and that could be everything from like taxes. a great example is in most states, Airbnb will remit taxes on behalf of the property manager for the bookings. However, in some cases they do it for the state or the sales tax or lodging tax, but they actually don't do it for the county. So then you have this situation where you need to collect some but not all of the taxes on that specific booking and remit them. And then that is different from other channels. So like Virgo or direct bookings or anything else, you're probably collecting 100% of those taxes yourself. So now you have multiple layers of tax complexity that you need to keep track of that you are then going to report to different tax authorities. And that right there, that alone can be very complex and hard it extremely difficult to do in spreadsheet. So that's one area that I see is really when it comes down to taxes. Another area that I see is the relationships that these property managers have with their owners. and this is something I myself as well have have done is as you're trying to grow and scale, you might make exceptions to your own rules, right? Because you really, you really want to make it work for this owner and you really wanna do things the way that they wanna do it to keep them happy. so for this owner you have this set of rules and you do this statement this way for them, whereas all the other owners you do it like this. and that alone adds a layer of manual work, complexity, things like that. And I think it's very common as you're kind of growing and scaling to make those exceptions because that's you're trying to grow, right? You're trying to sign on this owner. And it's nice to have a system in place that can actually automate those one off situations for you. So where you don't have to remember to do it every single month because it just it takes a lot of time. You know, I've had owners in the past that I manage their properties for where I had very complex statements for them and and their statements alone would take me a lot more time than all the others. And I had to remember to do things manually specifically for them every single month. So that's another layer of complexity is, you know, are you are you making different rules for different owners depending on how you do things? So I think that's very common. But yeah, hopefully as as property managers kind of grow and scale, they can kind of really start to establish like, no, this is this is how I do things and I'm comfortable doing things this way. And you don't really have to make those many judgment calls anymore in the future. But Yeah, those are those are kind of like two main areas I see a lot of complexity kind of come into play. Miles: Cool. Thank you. so gonna test you now on your knowledge of the integration between hospital and clearing. so what does the integration actually you know automatically pull in for hosts and what's requiring a human touch? You know, how much of the process is automated between the property management software and the clearing software? Ashley: Yeah, absolutely. So clearing is actually going to automatically bring in all of the bookings and reservation details for all of the bookings from Hospitable. from there, we are going to take that data. and this is something that we help set up during the implementation for everybody because it's going to be different for every property manager. But we basically set up how that information from hospitable for each of those bookings is then Allocated out, right? So maybe it's the nightly rate is to the owner and that's what the commission's charged on. The cleaning fee maybe goes to the management company, no commission on that. It's just a straight pass-through. It doesn't even need to show up on the owner's statement. Maybe it does need to show up on the owner's statement. things like the taxes, you know, in hospitable, you're gonna be able to see all of the taxes collected on that booking. that Airbnb example I gave earlier can come into play here where Hospitable is going to be able to give us all of that tax information, but maybe the state taxes need to be excluded and the county taxes need to be held and remitted to a tax authority. So we basically can automatically take all the data from Hospitable and then parse it out to where it needs to go. And it's extremely traceable and also it's fully reconciled against the money that is received in the bank. So that way the property managers can see that they can see where the money is going and who it is is owed to. to after it's already been collected from hospitable side. Miles: and you briefly touched on it. So there's a one on one onboarding for all of customers that are signing up to clearing, is that right? Ashley: That is correct. Yep. So we do have a very hands-on implementation process because we want to make sure that, you know, everyone's unique account and rules are set up the right way to fit their business. Miles: Awesome. And I've touched on unit counts a bunch of times and you've told me it doesn't matter to stop talking about unit counts. And but I'm gonna ask one more question around it. So if we're trying to scale our property count to something like, let's say a hundred units, and what's Ashley: Yeah. Miles: some of the financial infrastructure we should be getting in place before we kind of thinking about that that big scale from say 50 to 100 units and trying to move to that next step of the property management. Ashley: Yeah, absolutely. yeah, I would say, you know, build for who you're trying to become, not like where you currently are today. and again, it does tie back to your location and where you are and like what's actually required of you for that. Like I think this whole conversation kind of stems from that. Like make sure you are setting things up in compliance for your business, but Yeah, I think having the infrastructure in place to automate as much as possible and have a really clear understanding and visual into your finances is so important. I think taking the time now, no matter what size you are, whether you're just starting or you're already at 50 and you're trying to scale, taking the time now to set things up the right way is going to compound the time that you get back in the future. to focus on other things and to focus on your growth. I think finances is something that people can tend to kind of push off to the side and just be like, I will get to it, I will get to it, I will get to it. And I think it's you know, just just take the time to set it up right now and let it grow with you alongside you rather than letting it become a giant burden for you down the road. Miles: Nice, that makes a lot of sense. And think about those people that may have a bit of a burden down the road that are still using a spreadsheet today. What's the first thing that they should be doing after listening to this episode? Ashley: boy, yeah. I would say if you're still in a spreadsheet today and it's a huge burden for you, you know, reach out to Clearing. we'd be more than happy to give you a demo and and show you how we can give you back so much time. from personal experience, I was a property manager beforehand and I actually ended up waiting maybe a bit too long to sign up for a more sophisticated solution and I ended up signing on at about 60 and at that point I was like, man, why didn't I do this sooner? Why didn't I do this sooner? It saved me so much time and gave me so much confidence back in in my finances and in the numbers. So kind of no matter where you are, if it's frustrating and taking too much time. I think any time is a good time to get your system in place and get it set up and running the right way. Miles: Nice, awesome. And obviously any listeners that are hospitable customers can go to the integrations page on their account to find out more about clearing. but anyone that isn't a customer, where do they go actually to find out more about clearing? Ashley: Yeah, they can go to our website at getclearing.co. or you're more than welcome to reach out to me on LinkedIn and I'd be more than happy to get you set up with a demo. Miles: Perfect. Thank you very much, Ashley. That's all for today. Appreciate it. Ashley: Fantastic. Thank you. Miles: Thank you again for listening to today's episode. Hopefully that cleared up some things on clearing for you. And if you enjoyed today's episode, please don't forget to like, share, and subscribe on your favorite podcast platform. For hospitable hosts podcasts, we'll be back with another episode very soon.