15 tips to streamline the year-end process

The first few months after year end are stressful — there are taxes to prepare, books to close, audits, and K1-s to send. It’s a laborious process that can seem overwhelming. Getting through it successfully means putting a proper game plan in place.

CRE industry leaders, Noel Webb and Sean Cunningham. and experts in tax planning and fund administration, Bob Antonucci and Dorota Kowalski, recently gathered at a virtual KPMG Share Forum to discuss common year-end challenges and provide guidance on how to prepare your financial books and records and make the most of your year-end process.

Here are their top 15 tips to make the process run smoothly.

Regular housekeeping is key to keeping any organization running smoothly, but it’s even more important for the year-end process. Take time to create templates, update and populate current data, set up scenarios in software, and organize files and paperwork by creating a structure that is consistently labeled and filed.

This is a good time to ensure your investment management software has up-to-date copies of all investor information, including investor questionnaires, capital calls, distribution notices, subscription agreements, executed PPM, past K-1s, W9, assignments, and any accounting documents or supporting documents. That way, information is where it should be, everyone is using the same source materials, and anyone who needs to access information knows how and where to find it.

Getting all the necessary information in order, making sure it’s accurate, and getting it out to investors in a timely manner can seem like a herculean task. You can help streamline this by making sure your team is prepared. Start with the end in mind: what do you have to do and what will it take to get there? If you’ve had any turnover during the year, take time to educate newcomers on what the year-end process looks like, including procedures, key partners, what reporting is required, and anticipated due dates.

Dorota summed up the importance of preparation.

Putting tasks into a timeline and setting milestones can help to ensure a smooth start and lets your team know exactly what to expect and when to expect it so they can navigate the year-end process with ease.

Sean says, “To keep the process moving on schedule, we meet every week to monitor milestones and track where we are relative to plan on specific items. If an issue comes up with a specific property, we can easily figure out how to solve it because we have a good idea as to where we are in the process at any given time.”

Noel says setting milestones has helped make the year-end process efficient at ConAm, “We have to do audits and financials and K-1s on dozens of properties around the country. Some have been around since the early ’90s; others we just acquired, so the structures, timeframes, and equity partners are different for every deal. Setting milestones helps us to understand exactly what we need to do and how long it will take so we can work through everything in a very methodical way.”

Develop consistent, documented procedures that reflect best practices and past experiences, including problems and how they were rectified. This will help improve the process every year and keep things running smoothly, even if the core team changes.

Noel says they developed materials that explain how their funds and flows work, how they make calculations, and what their procedures are so anyone new to the team can quickly get up to speed.

Sean echoed the importance of consistent procedures. “The first thing I do at the beginning of every year is to send out audit notification letters to each of our sponsors to notify them that we are preparing for an audit and there will be required testing at the property level. We provide a detailed list of all materials and information needed and follow up with a meeting to go through the list and set expectations and milestones.” Sean continued, “Our process is very hands-on so we have regular meetings and I make myself completely available to our sponsors to help them with any audit questions. Over the years, we’ve created well-established procedures that make the process manageable and keep the process moving forward.”

Everyone rightly focuses on the financials, but investor information is often the source of errors that don’t get caught. Check in with your investors to see if there have been any changes to addresses, contribution sources, and things of that nature that might need to be updated in K-1s. This may seem minor, but it can take time to update necessary documents or, worse, you might have to re-do work that’s already been completed because of missed details. Ensure these changes are kept up-to-date in the Investor Portal, so they can be flowed through to future documentation.

Sean summed up the importance of hiring third-party experts to oversee the year-end process, “As I’ve become more seasoned in this business, I’ve concluded that the most important things to running a smooth year-end process are effective communication and including experts. We use a third-party fund administrator because they understand the process and can make things easier and far more efficient.”

Without a strong understanding of the events that took place over the year and easily accessible supporting documentation, it can slow the process. Use investment management software to track material updates — like capital calls, new investors and partners, and changes to the entity structure — and ensure that your team, administrator, auditors, and other service providers have the most up-to-date information. Check in quarterly throughout the year to go over what happened during the previous quarter. That way, everyone is up to speed and can get everything in order before the year-end process even begins.

Communication is vital. Maintain regular and open dialogue. Hold weekly status meetings with your team and all service providers to discuss milestones met (or missed), upcoming deadlines, and blockers. To facilitate information exchange, Dorota suggested appointing a point of contact on each team who can coordinate and review responses, especially to auditors, because it will minimize questions that can cause delays.

Noel emphasized the importance of keeping fund administrators in the loop, noting, “Whenever we’re doing work that has some kind of a tax implication — figuring out the taxable gain on a sale or what kind of tracing might be required — we reach out, and that outreach just gets more robust as we head through the audit, which makes the year-end process more efficient.”

Start preparing documents months in advance of the audit. Although many GPs do this in house, not all know how to do this well. As a former auditor with years of experience, Dorota knows all the best practices to ensure audit-ready documentation. Because so much is dependent on the timing and quality of your documentation, she stresses the importance of making your work papers concise, clear, and inclusive of all supporting documents. She also suggested making proper documentation a part of your regular accounting workflow so, when the year-end comes, everything is ready to go.

Audits can be intimidating — even for the experts. Sean said, “I used to be terrified of audits. But I recognize how critical they are, especially for our investors who rely on independent third-party oversight to know their investment managers and developers are using their money correctly and nothing’s being misappropriated.”

Engage your auditors. The more transparent you are, the better. There shouldn’t be any surprises because they’ve pre-vetted everything. Plus, it will save time because they already know what your firm is doing and, if they understand your future plans, they can ensure you’re set up to pass audit testing on a going-forward basis.

As a former auditor, Dorota reminded everyone to be kind to your auditors, “Put them in comfortable locations. Year-end can be stressful so the more you can do to ensure a good working environment, the happier and more efficient everyone will be.”

Real estate investors expect a technology-driven experience for receiving their statements and financial information. Not only can you provide secure, anytime access to documents using software, but you can also better focus your communications. Noel notes that using Juniper Square has been a game changer for their communications, saying “If we know something will be delayed for one group and not another, we can proactively reach out to the right people. We spend a lot of time fielding investor phone calls and talking with auditors and tax preparers to find out where we stand with different entities and K-1s. The ability to be proactive and get that information, check it, and get updates out to the appropriate investors as quickly as possible is important."

Integrated Capital Management is also using Juniper Square to its advantage. Sean pointed to technology as something that can exponentially improve the year-end process, mentioning “We rely on Juniper Square’s investor portal because it allows us to securely store and send documents. I can’t tell you how great that is, especially with K-1 uploads. When KPMG sends a file with all of our fund-level K-1s, there may only be one federal K-1 for all investors in that fund, but depending on the funds investments in each state, some investors might have two, five, eight, or 10 different K-1s. We can now pre-label the file to match the right K-1 to the right investor. It’s like a miracle. I used to spend weeks making sure every investor got the right K-1s for every investment. Now it’s done seamlessly with a good tax preparer, a good auditor, a good fund admin and a good investor portal.”

Every panelist had stories to tell about issues either caused by or complicated by the lack of best practices described above, like failing to communicate, not asking about changes to filing requirements until late in the process, or simply not thinking about how unusual circumstances or things you haven’t encountered before might impact forecasts, valuations, loan covenants, or the audit process.

The biggest learning is that things sometimes will not go as expected. No matter how well you plan ahead, there can be hiccups in the year-end process. Even the best controls in the world can’t prevent occasional mistakes. Don’t panic. Instead, put all that energy into finding a solution to fix problems and committing to a post-mortem afterward to make sure it doesn’t happen again.

etting new service or solution providers can be time consuming, but it’s important because they will be partners in your business. If you have one weak link on your year-end team, whether fund administrator, tax preparer, or auditor, you risk serious consequences.

When you do find a service provider you trust, they can be a great source of referrals to other parties. Both Sean and Noel rely on their tax preparers and fund administrators to provide advice on new business partners. When ConAm launched their fund, for instance, they used a law firm for their first two funds, but personnel changes left them looking for new counsel so they turned to KPMG for guidance. When it came time to find a software solution, they turned to KPMG again. Noel said, “They helped us review every potential option out there, which led us to Juniper Square.”

Dorota added, “Fund administrators and auditors can provide good referrals and reviews of each other because they work closely. Fund administrators can get a sense of the audit team’s expertise by the questions they are getting from the auditors and vice versa. Auditors can see how a fund administrator operates. Plus they have access to their documentation and can easily see their U.S. gap expertise. And, given that they work with so many different types of firms, fund admins and auditors can also be a good source of referrals for other service providers, too.”

As a CFO, Sean is laser focused on the bottom line. For instance, he makes sure their fund loads — all the extraneous expenses like organizational costs, legal costs, management fees, insurance, audit, taxes — are managed very carefully because the more they keep those costs down, the more dollars they have to invest to make their investors money. You might think he’s also focused on finding the least expensive service providers. That’s not the case. He’s mindful of fees, of course, but cautions that cheap solutions may end up costing more. He recommends you take time to research and vet potential partners.

“That’s a nightmare scenario to avoid, so spend the time up front to find the right partners for your business.”

You will be reliant on the work of others and any delays can be challenging, especially during crunch time. As Sean said, “Crunch time can be a nightmare, or it can be manageable. It comes down to organization. If everything is well organized in advance, it will be manageable; if not, the process likely won’t be smooth.”

To combat delays, Dorota stressed the importance of making sure everyone has a good sense of what’s outstanding and who is responsible, “Make sure information is provided in as clear a format as possible to minimize unnecessary questions, especially during crunch time. Avoid data dumps or waiting until everything is finalized. Instead, send pieces once they are ready. Keep copies of everything. Create folders labeled ‘sent to tax preparers’ or ‘sent to auditors’ so, if anything does get lost, you can go back to the files and won’t have to recreate anything.”

Audited financials are another part of crunch time that always seem to get released at the last minute. While you might not be able to prevent that, you can prepare for it. Dorota suggests trying to get financials in good shape early in the process by making sure that updates to disclosures or formatting are already made, so when crunch time comes, all you’re doing is putting in and reviewing the final numbers. She says, “At Juniper Square, we have a dedicated team of accountants, each with a public accounting background, who can handle all these reports for our clients, which improves efficiency and overall quality across the board.”

Year-end doesn’t have to be difficult. The right combination of service providers and software solutions can help improve organization, enhance efficiency, improve document security, and prevent errors. Proper preparation can make sure your team is as organized as possible.

One concrete way to make this process smoother is to hire a fund administrator who knows how to run a year-end process smoothly. At Juniper Square, we make sure work papers are audit-ready long before the audit begins, and have established communications routines with our clients that help make this process run as smoothly as possible. Interested in learning more? Just click the link below.

Let Juniper Square improve your year-end experience.