Understanding Trust Accounting for Short-Term Rental Businesses with Clearing

Miles (0:00)

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 to your favorite podcast platform. Let's get started.

Okay. Thank you so much for joining us, Ashley. Thank you for being here today.

Ashley Hagel (0:41)

Yeah. Thank you, Miles. I'm really excited to be here.

Miles (0:44)

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 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 reporting and accounts?

Ashley Hagel (1:17)

Yeah, absolutely. Yeah.

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 going to be for your business. But it's really going to come down to how you're running your business, and 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 spreadsheet is not necessarily going to understand who that money belongs to. And I think that's an important 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 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. I've done that. And we're human too, right? At the end of the day. So if you're doing 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 then you take it from there.

Miles (3:13)

Nice. Okay. And you already touched on trust accounting there.

Maybe you can give us 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 Hagel (3:27)

Yeah, absolutely. Yeah, so trust accounting at its core is that 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 practice and understanding of knowing who that money belongs to. Because as you have these deposits come into that account, it's going to be owed to the owners, it's going to be owed to a tax authority, 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. 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.