For any real estate business, proper bookkeeping is a critical aspect of the business. What is the main goal of bookkeeping? The main goal of the bookkeeping is to have a standard and accurate records of all your transactions. Bookkeeping provides a clear record of financial transactions for your business which is useful for future reference. It assures that you have a copy to check your ledger against.
Bookkeeping is a challenging task to carry out in the beginning and if it is not your area of specialty, it is a time-consuming task. We’ve documented 5 ground rules to guide you in your real estate bookkeeping.
1. Keep your transactions separate
Never mingle your business and personal transactions. Have a separate account for your real estate investments so that you can have separate accounting activities for that account which will not get mixed with your personal expenses. Especially if you’re a company that uses LLC or other legalities then keeping a separate account and monitoring it, will be useful. Bookkeeping then becomes more straightforward with different accounts and one management account to manage them. Software like QuickBooks will be useful for tracking your transactions.
2. Categorize all income and expenses
Separating the accounts and keeping track of transactions will also make you itemize your incomes and expenses. Track every penny that you get and spend, as it is better to categorize every item like ads, travel expenses, cleaning and maintenance, insurances, supplies, taxes, and utilities, etc. It is important to periodically itemize your incomes and expenses because the longer you leave it, the more likely you are to forget it, or put something in the wrong category. Professional software like QuickBooks can help you do this easily.
It is best to practice categorizing the items as per the listed categories of the IRS, so you will find it helpful when you do your tax form fillings. The list include
- Legal and other professional fees
- Repairs, supplies, and taxes
- Auto and travel expenses
- Utilities and management fees
- Depreciation expenses and others
3. Keep track of your all receipts
This may sound silly but keep track of every receipt: this collection of receipts will prove invaluable with your tax payment. You will be running a structured and organized accounting with good knowledge of where your money is going, what bills have been paid, and what bills have not been paid. Why is this important? Because sometimes businesses will bill you for things you have already paid for and the onus is on you to catch such errors. Doing the books by hand or spreadsheets can be feasible on a small scale. However, for larger operations or simply for convenience, you might want to consider an upgrade to QuickBooks or Xero.
4. Reconcile your details with bank details
This is an essential practice to guarantee that your books match your bank account. Think of reconciliation as double-checking everything for accuracy and it’s important because you may find discrepancies. Reconciliation is a good bookkeeping practice and can protect you from accidentally getting double-charged.
5. Generate clear reports
The final step is quite obvious, you are done with all the data entries now, report generation will be an important task to do. Reports help you see how well your properties are running. With software like QuickBooks, the process is easy and it will generate the reports at the end of the month for you to see. The most common and useful report is a profit and loss statement that helps you see the financial health of your business.
Bookkeeping can seem confusing in the initial stages, and there is definitely a learning curve to pick it up. For business owners who are low on time, turning to a qualified expert can be the ideal choice for ensuring professional bookkeeping. Do you feel like you need assistance with the complexities of bookkeeping? Smartfin has over a decade of experience providing end-to-end accounting services. Bookkeeping is made easy for you along with the other features like process reviews, monthly financial statements, filing tax returns. Contact us to explore working with SmartFin.