8 MIN READ
Professionals in the real estate industry know that one of the most critical aspects of your day-to-day, is dealing with (and managing) large sums of money. This money needs to be well-managed. Otherwise, you risk costly mistakes – for you or your business, and for your clients. That’s why, finding the right method, people, and technology to properly manage your real estate accounting is incredibly important.
Let’s start by answering the question: who should know a “thing or two” about real estate accounting?
- Do you run a real estate agency that employs commissioned people?
- Are you providing residential sales and/or letting services?
- Have you been managing residential properties?
Ultimately, if you answered “yes” to any of those scenarios, this guide to real estate accounting should give you a few tips on how to better control your financials – in and out.
Know your parameters: real estate industry regulations
Real estate regulations will affect how you manage your accounting. They are usually highly dependent on the province or state and country you operate your business in, make sure you’re well aware of all the provincial/state and federal real estate regulations that will affect the management of your business. For example, some countries have stricter rules you’ll need to follow, and some might even change across state or provincial borders.
Before you set plans in motion to tackle your real estate bookkeeping, first identify the real estate regulations in your area as they relate to:
- Money laundering laws
- The valuation of commercial or residential real estate
- Offsetting your expenses as a business
- Land, property and inheritance taxation
- Managing and accounting for your clients funds
Once you’ve identified these regulations, ensure you’ve got the people and systems in place to properly follow the guidelines for financial management and administration. These guidelines are set by your local real estate commission or agency. These codes can be tricky to navigate. You might need to consult with a financial professional that specializes in the nuances of real estate. This will ensure that you are on the right track. These guidelines will also inform the way you go about bookkeeping for yourself or your business. Not only that, but you’ll want to make sure you’re staying up to date on any changes to these guidelines and/or regulations, so put a process (or person) in place to review and make changes accordingly.
Organization and record-keeping is key
Whichever method of bookkeeping you choose (cash-basis or accrual), you need to make absolutely sure that you have a rock solid system in place to keep accurate records. This might mean choosing an accounting software, or hiring a specialized resource, or investing in technology that helps you keep track of contacts and their records – like a real estate CRM.
Your process could make or break your success. Losing yourself in spreadsheets or paper files will only cause more headaches, and put you at a greater risk of mismanagement of funds, taxes and critical data. A next-generation real estate CRM will allow you to simplify and better organize your transactions. Many are cloud-based, which makes it even simpler to access a dashboard and manage, update or modify your bookkeeping from anywhere.
A real estate CRM will also allow you to store data, records and documents. This is of particular importance for real estate professionals, because paperwork can be all-consuming at times. Be honest, do you have data trapped in Excel spreadsheets, Outlook, Gmail, your phone, your MLS, or even your website? Organizing your documents digitally replaces the old filing system that just made record keeping an enormous pain in the neck.
Easily store and manage the “important stuff” that you may need to reference for accounting purposes on a regular basis. These include invoices and receipts, bank and credit card statements, tax returns, contracts, leases, etc.
Review, review, review
Whether you choose to use a software to store your records, or a cloud-based app to help you keep track of your financial situation, or you decide to hire a resource to handle everything for you – careful and regular reviews are necessary. Set up monthly or quarterly, and yearly reviews with anyone involved in your real estate bookkeeping. Even if it’s just you, set reminders for regular times for yourself to review your accounting software and/or CRM to ensure that you have the full picture of your finances.
What should you be looking for? Find analytics or reports for the following items every time you review your financials:
- Debits and credits (transactions in and out)
- Accounts received, and payable
- Adherence to tax regulations and any new/updated codes
- Upcoming/projected transactions (in and out)
- Progress towards monthly, quarterly, and yearly goals
It’s very important to set aside time for yourself and/or your team to review transactions and statements. Doing this will make you aware of any existing errors or any outstanding payments. If you are using an accounting software or app, you can usually download analytics reports to measure your progress. Review all of this on a regular basis to ensure nothing falls through the cracks.
You’ll want to make sure that you can be agile enough to make changes or catch errors before they become larger problems. Put action plans in place immediately when you notice errors to reconcile, or foresee obstacles to your growth projections.
Ultimately, you want to be sure you’re operating within the best business structure. Keeping up with codes and regulations in the industry, staying organized and keeping track of critical data are also key. A resourceful CRM can help ease the stress of paperwork and disorganization, but you’ll also need to know what to review, track, and how to put processes in place to ensure you’re set up for success. To get organized and stay on top of everything, try IXACT Contact—sign up for our 5-week FREE trial today!