Owner trust accounts: the bookkeeping rule that ends management companies

Money that a management company holds for someone else — rent collected, security deposits, reserves for repairs — is not the company's money. It sits in a designated account, separate from operating funds, and it is reconciled. The failure mode is almost never theft. It is a cash crunch: payroll is due on Friday, the management fees from the month land on the tenth, and the operating account is short. Borrowing from the account holding owner funds feels like a timing problem and is treated as something far more serious. Three controls prevent it. Separate accounts, so the balance is visible rather than blended. A three-way reconciliation every month — bank balance against the book balance against the sum of what each owner and tenant is owed — which is the only check that catches a shortfall while it is still small. And segregation of duties, so the person who records the deposit is not the only person who can move the money. Software helps and does not substitute. A trust ledger that has never been reconciled to a bank statement is a report, not a control. The business argument is as strong as the compliance one. An owner deciding between two managers is deciding whom to trust with their cash flow. A manager who can produce a clean monthly reconciliation without being asked is answering the question before it is put. This article is general information, not legal, tax or financial advice. Rules change and every deal is different — check your own case with a licensed professional. Alberto Zaltzberg — Adonait · adonait.com