Every business has its dos and don’ts, pros and cons, which can translate into success in the short-term, long-term, or even lead to failure. Keeping precise business records helps your business.
Any business needs good bookkeeping practices so that the decision-makers are aware of the company’s current financial condition.
What is Bookkeeping
Bookkeeping may be defined as the process of recording financial transactions. It involves managing books of accounts, financial statements and recording all transactions, whether small or large.
Bookkeeping is a crucial function for an entity since it gives an overview of the financial conditions of the business. You can learn about the cash flows, payments to be made and received, pending taxes, and so much more with the financial books.
Real Estate Bookkeeping
Real estate bookkeeping has its challenges due to the many technicalities involved in the industry. You should hire someone with previous experience in real estate accounting.
A bookkeeper who understands the real estate industry can better manage the finer details and avoid common bookkeeping mistakes. Bookkeepers in the real estate industry can make several mistakes. Let’s dig in deeper into the matter.
Poor Maintenance of Records
Poor maintenance of books is widespread, which leads to many issues. Such issues usually happen when an unprofessional bookkeeper takes care of matters. It can especially be a problem if there is an audit by authorities.
- Losing track of small transactions by misplacing receipts. Such issues can lead to thousands of dollars in missing expenses.
- Poor control over petty cash. Spending money on business and not recording it in the books also leads to financial losses.
Microsoft Excel spreadsheets, QuickBooks, Buildium, etc., are good software options to ensure smooth recording of transactions.
Wrong Employee Classification
In the real estate industry, you will have a lot of people working for you. There will be employees working full-time in administrative roles, and there’ll be market analysts working part-time, helping you make better-investing decisions.
Some businesses make errors in classifying employees, which can lead to wrong calculations of taxes. If found in a tax audit, these errors can be penalized. Some businesses make these misclassifications on purpose to lower their taxes.
Same Bank Account
Having one or the same bank account for personal and business transactions leads to problems and difficulties separating personal expenses from business expenses. It is a problem often found in smaller real estate businesses.
You will benefit from having separate personal and business accounts. The greatest advantage is that you will not overdraw from the company without realizing it.
Lack of Back-Up
We live in an Information age, and the use of technology seems like the most obvious step in taking backups. Some businesses do not have a backup of their books, which is a huge problem
- Backup using cloud services is a good idea. It would help if you used reliable cloud service providers to minimize the risks.
- Physical backup is also a good idea. Traditionally, hard copies of all books of accounts were maintained. Be sure to keep these books away from your office location.
Improper Classification of Expenses
Different expenses need to be treated appropriately in bookkeeping. Otherwise, your business may make a loss for no actual reason. Your bookkeeper will generally know how to treat just about any expense.
Your expenses are part of your daily operating cash flow, and you should keep tabs on them. It’s easier with all the accounting software around, especially if your bookkeeper is not experienced in real estate.
Real estate is a tiring business that requires a lot of the owner’s attention. Some of them make the mistake of bookkeeping as well. It is an entirely different field that requires special training and skills.
Bookkeeping is a time-consuming task that needs a dedicated resource. Errors can lead to business losses. Hiring a bookkeeper is crucial for any business. If you can’t have an in-house resource, outsourcing is also a decent option. Many small businesses use outside bookkeepers, and you can too.
In short, bookkeeping in real estate is an essential aspect for a real estate management firm. No matter how good your sales are, improper tracking will lead to losses in the longer run.
Minor errors like misclassifying employees or failing to report expenses properly can lead to big problems and even financial fines from the tax department. Ideally, leave the bookkeeping to the professionals who can ensure that they take care of your accounting books.