You may know that real estate accounting or bookkeeping is often perceived as a tedious and complicated task and pushed to the wayside. However, there is no doubt that successfully and efficiently managing accounting is a crucial part of keeping your business profitable as a real estate professional.
Note that whether you are an independent contractor or part of a large brokerage firm, streamlining your monthly or quarterly workflow is essential. This is because it will allow you to manage your time better, track large expenses and payments, and prepare yourself to meet all your tax obligations. It is no secret that the main goal of real estate accounting is keeping a reliable and accurate record of all the money coming in and going out of your business.
Accounting is one of the vital tasks for your real estate business. Did you know that there are many benefits to staying organized, like legality, freedom, and profitability? Therefore, all professionals in the real estate business, such as brokers, need a strong and comprehensive understanding of the accounting process in order to improve their bottom-line growth.
These are some of the best accounting tips for real estate professionals.
Streamline Your Chart of Accounts
Note that despite tracking pricey marketing budgets and large sales, the chart of accounts that you need to effectively manage your real estate business is quite simple. Did you know that you need a reliable chart of accounts in order to record as well as organize all your accounting journal entries? It is worth noting that a chart of accounts is important as it lists every real estate transaction that you make.
And the best thing is that you may use the chart of accounts in order to create reports, locate historical transactions, and measure performance. So, it is important to make sure that you have expense and income categories for these items:
– Real estate association fees and dues
– Office expenses
– Education expenses
– Marketing and advertising expenses; and
– Commission income
Although you may always add a few more accounts, usually, these are the key income and expense categories that you will need to effectively track financial activity and gauge the financial health of your real estate business.
Of course, you can always create some subcategories within these accounts in order to reflect more accurate and granular data. This is because it is often better and prudent to have more information in the form of financial reports throughout the year as it will help you make important business decisions. It is important to update your chart of accounts regularly for accurate and reliable records.
You should also ensure that you record every financial transaction and then calculate the correct balances for every account.
Reconcile Your Bank Statement
Each month, go through your paper statements carefully and then check them against the amounts recorded in the accounting system. Did you know that the main purpose of bank reconciliation is double-checking everything in order to make sure that your books are accurate?
You may know that sometimes banks make mistakes, and you will be charged for items you did not buy. Also, note that you could get double-charged. This is why it is important that you check to make sure that you have not missed any entries.
Know Common Accounting Terms
There is no doubt that accounting jargon can often seem like another language. This is especially true if you are not familiar or well-versed in business accounting. It is worth noting that terms such as balance sheet, accounts receivable, cash flow, accrual, ledger, and Return on Investment (ROI) are not words and terms that usually grace everyday speech.
This is why it is important to learn all the basic business financial and accounting terms and what these terms mean.
Track all Receipts
You should keep every receipt as well as designate which property the specific receipt was for. A good practice is to write the property description and the purpose of identification on the receipt. Keep in mind that this is not just helpful in deducting the correct amount at tax time—as well as proving to the tax authorities that you are legitimate—but it can keep your business finances organized as well.
Note that when you are starting, one of the most important habits is to track and adequately categorize everything, even if you do it on a simple spreadsheet. This can build a firm foundation to expand on when you decide to get more advanced.
Software for Automation
Accounting software is essential to ensure that you receive payments, track your expenses, process payroll, as well as stay current on your tax obligations. There is no doubt that the time you save is well worth the time and cost incurred on learning the latest technology and incorporating new and improved habits into your daily routine. It is worth noting that when it comes to keeping your books, simplicity is the best.
In many cases, purchasing a fancy and complicated software program creates more confusion and frustration. So, it is best to purchase a simplified accounting software program. The good thing is that there are many software options out there that can help you create an effective chart of accounts while meeting all your needs.
Did you know that Schedule C is important, and it can lower your self-employment income tax? In most cases, real estate agent income is usually claimed on a Schedule C. So, for instance, if you’ve a home office, you can take a deduction for that home office. Note that this will transfer some of the mortgage interest to Schedule C from Schedule A, thus, lowering your self-employment income tax.
Whether you like to track your finances on your own, with the help and guidance of an outsourced accountant, or via an online system, keeping updated with your real estate accounting is an important activity that is integral to monitoring and improving the financial health of your real estate business.
And to make it less confusing and daunting, it is best to educate yourself and prepare for the task ahead. And you may also seek professional help or get a software program that makes accounting quicker and easier for you. With user-friendly and simple accounting solutions available to real estate businesses of all sizes, you should get started as soon as possible.