Badly maintained accounting books is like playing a game where no one keeps score. So no one knows who is winning or losing, and absolutely no one has proof of the right score.
We always talk about the way the real estate industry is inevitably hand in glove with their accounting. This is primarily because of the amount of money being dealt with, and it being dealt with daily. So for a professional in the industry it’s no secret that accounting for real estate is a soft kitten with sharp claws. And when it isn’t done well, it can prove to be the weak link to your business, providing insufficient or misleading information that causes you to take ill-informed and ruinous action that affect you financially, and dock your brand name. And all of that could just boil down to something as simple as book-keeping badly done.
Agents are heavily dealing in cash with commissioned agents, clients, commercial management services, services in building construction and development, investment portfolios, and leasing and sales. That’s an incredible amount of money to be handling on a daily basis.
Here are some pointers to help maintain book-keeping without getting encumbered by it.
- First, keep a handy medium – paper or digital – to record all
- Instead of waiting for the end of the day to make entries, keep noting them through the day as they happen (either in a notebook or even by taking pictures of the receipt in your smartphone/tablet).
- File the supporting documents that are proof of those transactions.
- Use separate bank accounts for personal and business use.
- Ensure your accounting software is linked with the bank account so transactions can be easily tracked by downloading it into the spreadsheet.
- Include a memo column to add notes about the transaction that you may otherwise forget later in the month.
- Keep your data current. Hire a book-keeper to do this.
- Maintain distinct records of each property and its dealings.
- Financial reporting must account for operational costs of other people involved as well as permitted expenses allowed for commissions.
- Use simple folders and filing cabinets to store supporting documents.
- Use separate folders for proof of expenses (invoices, receipts etc.), bank statements, tax return documents, and non-financial property documents.
- Use simple spreadsheets, like Excel.
- All supporting documents must be handy and easily accessible for audits. Audit trails of each transaction makes it less stressful and less expensive for the time when government officials spring a surprise visit.
- Make use of advanced real estate accounting software, like Yardi or MRI, to deal with more intricate activities, especially if you deal with multiple properties.
- Sample the different software available to understand which software should you choose for your real estate accounting.
- Don’t forget to match the software to the real estate budgeting process, too.
- Ideally, a good software will let you:
- securely update your accounts from anywhere
- quickly and easily share real-time financial data
- track your portfolio’s performance from anywhere
- automate much of the work
- have direct bank feeds
- reduce your IT overhead
- produce powerful reporting
- Make use of automation options afforded by these software to speed up what would otherwise be a manual process liable to human error.
- When you do that, you use the software to translate raw data into reports, and to integrate with other necessary functions like doing the payroll, invoices, issuing 1099 forms, sorting basic tax related calculations etc.
- When paying salaries that vary (because of commissions of percentages), use book-keeping in accounting software that have built-in payroll features that automatically calculate commission, and also withhold taxable amounts.
- Using cloud-based online property accounting and management software lets staff work remotely while they are out on the job. Make sure this is in sync with the software used by your business to be able to offer your clients superlative services.
- Consider outsourcing all or part of the accounting function to an agency that provides accounting services, so you don’t have to deal with the book-keeping yourself.
- Plan ahead – either sorting your affairs with a book-keeper and good software, or with an agency – so your accounting is streamlined with your business and you can cash in on the advantage of time to build a solid real estate business.
So get organising smart to get analysing right!