Real estate accounting is usually perceived as a tedious task, and pushed to the wayside. However, it is an invaluable activity that helps investors analyze the health of their operations, pay their taxes on time, and manage their income wisely. Therefore, all those in the real estate business need a strong understanding of the accounting and bookkeeping processes to improve their bottom-line growth.
Accounting for real estate business helps answer the most important question: are you making a profit? As a new investor, you need to know and understand the sources of income and where the money is spent. Although the subject of real estate business accounting is vast, investors need to have basic knowledge on how to evaluate their spending, minimize debt, and maximize earnings. Here are some important tips that you can start implementing right away.
1. Evaluate Business Spending
It is important for real estate agents and investors to get into the practice of evaluating their business spending. Although it is time consuming, going through every business expense is a necessity. It is important to dedicate a day per month to go through every single bill and expense made.
Most likely, realtors discover that they have paid too much for some service, or that some of the bills have sharply increased over a period of time. If this exercise is done on a regular basis, it is easy to decide whether or not some business expenses are actually necessary. You can also identify the excess payments made for any fancy purchases or infrastructure for the office. And this simple activity can result in saving thousands a year.
2. Evaluate Personal Spending
Applying the same exercise to personal spending can also be a blessing in disguise. In fact, it is most important for those investors with small or independent businesses to do it meticulously and regularly. Sometimes, personal funds are used for the business and cannot be accounted at a later stage, restricting funds that could be used for personal investments. Evaluating personal spending till the business is strong enough to hold out on its own is a prerequisite for new investors. It also helps in distinguishing and analyzing investments made with personal and business income.
3. Maximize Business Revenue
In addition to analyzing your expenses, it is vital to determine how to maximize revenue in order to grow the business. As a first step, breaking down each expense will help agents find ways to maximize revenue. Other steps include considering increasing rents for some properties, re-evaluating contractor rates, filing taxes on time, and more. It also means that you can work out the cash flow and seek to maximize each business deal.
4. Analyze Business Debt
In the real estate business, checking the interest rates of mortgages and credit cards on a regular basis is an intelligent strategy. To start with, opting for a zero-interest credit card can result in considerable savings for the business. You need to check if there are any refinance options for mortgage in order to lower the payment or extend the repayment term. Other options would include closing the mortgage insurance altogether, or obtaining a new mortgage with better terms that reduces the monthly cash outflow. Irrespective of the current debt conditions, maintaining a good credit score is vital for the business.
Bottom-line growth is very important for any business. In real estate this translates into better opportunities and improved market share. Knowing how to have firm knowledge and control of every expense and earning is important for investors to fare well in this business. You can actually invest in your real estate business wisely by knowing how to manage your financial resources.
If you work in the real estate sector and are looking for accounting and bookkeeping services, SmartFin can be your best choice. We have over a decade of experience in end-to-end accounting services for clients worldwide. Our services cover all your accounting needs, from process consulting solutions to AP, AR, and financial statements. If you want to streamline your accounting and bookkeeping processes, please drop us a line and we’ll get back to you.