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All small businesses, regardless of industry, require good management and accounting. Your company is a complex system. To run the business well, you need a cool head and the ability to juggle many moving pieces. The real estate business is certainly no exception.
From working with clients to acquiring and managing properties, there are a lot of moving parts in real estate. That’s where real estate accounting comes in. Use this real estate accounting guide to support your business as it grows and expands.
What is real estate accounting?
Real estate accounting is simply the work of financial accounting for a real estate business. It involves monitoring all financial activity, maintaining records, and then reporting and planning for the future of the business based on the information gathered.
It is a broad field that includes a range of important work. Here are just a few of the tasks involved:
Who needs real estate accounting?
All real estate professionals rely on real estate accounting, whether they know it or not. The larger the operation, the greater the real estate accounting needs. However, even independent real estate agents with smaller operations may struggle to stay on top of their finances. Without dedicated accounting services, it can be difficult to know what the right decisions are when it comes to the financial side of the business.
All real estate professionals need good accounting to stay informed about the health of their business, make appropriate plans for future financial health, and manage all their tax and legal obligations. This includes property management companies, individual realtors, landlords, and agents working for large companies.
Bookkeeping vs. Accounting for Real Estate Businesses
What is real estate accounting, and how is it different from bookkeeping? Both bookkeeping and accounting are important for a company’s financial stability, and they tend to overlap and depend on each other for maximum efficacy.
Bookkeeping is the practice of maintaining clear and accurate records. Effective bookkeeping for real estate agents means tracking income, business transactions, and expenses. It means keeping records of everything and then ensuring those records are accurate and easy to access.
Real estate accounting is about using the data gathered from your bookkeeping system to comply with real estate regulations and tax laws.
How does good real estate accounting make a difference?
What difference does good accounting make for a real estate business? For lone entrepreneurs or small firms, you may be tempted to do the accounting by yourself. However, unless you’re going in with a wealth of expertise, you could put your company at risk.
Plan and Project
Without reliable and accurate accounting, you’re operating your business in the dark. How can you adapt and prepare for growth if you don’t have the data or the skills to analyze it? Without a readable and comprehensive income statement in your hand and an updated chart of accounts, you don’t have a clear picture of your company’s health.
Good real estate accounting means having the ability to observe the market, make reasonable projections of where your investments will lead, and plan appropriately according to those estimates.
Cutting Costs and Improving Process
An expert accountant can look over your finances and pinpoint the excess. Where are you wasting resources, and where are there investment opportunities?
The goal is to increase efficiency and optimize your process. What steps can be simplified in your company’s workflow? Could some business accounts be consolidated or separated to make financial reporting easier?
Tax Filing and Audit Protection
Tax law is changing all the time, and no one knows it better than a professional accountant. A good real estate accountant can make it simple and easy to complete and submit your small business tax return. They’ll also help you maximize your tax savings and prepare you in case of an audit.
Important Items to Track in Real Estate Accounting
Business analysis and planning can only be as good as the information it’s based on. That means that your accounting depends on careful bookkeeping. You need to keep track of everything and create real estate accounting entries in your ledger for every exchange and transaction that occurs.
If you’re just starting out and establishing your bookkeeping processes, these are the key things to track:
This is the data that you’ll use to put together your financial statements. These reports should give you a snapshot of your financial health.
What is cash flow, and why is it so important?
Cash flow measures the inflows and outflows of funds for your business in order to assess the liquid assets you have available at any given time. Assets are great, but there is no substitute for having accessible funds in your bank account.
You may have a lot of valuable properties and rent due by the end of the month; if you don’t have cash on hand when your bills are due, that’s not good news.
Get Accounting Services from a Professional
If you don’t feel like you know how to do real estate accounting alone, don’t hesitate to consult an expert. Find an accountant you trust to help you improve your company’s financial foundations.
You might not have the resources to hire a full-time accountant, but it’s possible to get high-quality real estate accounting help without breaking the bank. Any money you spend on accounting services, you’re likely to make up in improved efficiency, planning, and savings on your small business taxes.
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. 1-800Accountant assumes no liability for actions taken in reliance upon the information contained herein.