image courtesy: stockphotos.com
Real estate is one of the most booming industries worldwide due to the nature of the work. From a person looking for a small apartment to a business house looking for a place for their upscale office, everyone has to meet with a real estate agent.
The business has many intricacies with the sale and purchase of property, renting them out, and even indulging in construction. To ensure that you maximize profits, the dealing outside and inside the office must be perfect.
Bookkeeping, the art of chalking down every financial event in the company, plays a significant role at the back end in a real estate business’s success. Bookkeeping for real estate businesses can be especially tricky.
Errors can lead to loss of profits and financial penalties from the authorities. In this post, we will look into some advice to avoid bookkeeping errors.
Let’s dive right in.
Just like any other industry, real estate also has its technical aspects. The different kinds of incomes and expenses have to be treated according to the financial standards applied to the real estate industry. A proper professional bookkeeper can do well in maintaining the books of accounts.
You probably want somebody with a fair bit of experience dealing with real estate accounts when you are hiring for this particular field. It can save you errors and time, which you will eventually need to fix some minor issues. Anyone without prior experience will face initial difficulty.
Minor issues are a part of the accounting process, and the bank reconciliation is rarely 100% accurate. Issues can be fixed within minutes if you’re reconciling these statements every couple of weeks. Even once a month would do.
However, fixing issues will be challenging if it is a once in a quarter exercise for you. You will already have lost track of any item that is out of sync.
Records provide all the information related to a business. In case of loss of documents, a company for all practical purposes will cease to exist. In recent times, businesses have an overreliance on keeping their financial information in a soft form.
Information is stored on hard drives or in cloud accounts. While these technologies help, they can be susceptible to theft or corruption of data. It is essential to record the data in a physical form and store it away from your primary work location to ensure safety.
A real estate entity will have different employees, including full-time employees, part-time employees, and consultants. All of them are treated differently in the books of accounts, and usually, their income is taxable in different manners.
Some companies do this on purpose for certain benefits. However, it is a horrible idea as auditors and tax authorities usually look for this kind of issue.
They often slap heavy penalties on businesses that miss-classified their employees. Extra attention must be paid in this area to avoid potential fines from the tax department.
Commissions are a significant source of income for people associated with the real estate industry. They’re based on many factors, including the selling price of real estate and other important terms and conditions of the sale.
These terms and conditions can change at the very last minute and lead to a change in the general commission made by the company and the agent. Never enter a commission into the books unless the home’s key has been delivered in the final sale documents have been signed.
It is an occasional mistake that can lead to improper tax-related information at the end of the year. If you don’t err, it saves you from the hassle of fixing commissions in the books later on. It can also lead to tax-related issues if an inaccurate commission is entered and later not rectified.
Small expenses are the hardest to track. They generally make up the bulk of expenditures carried out by the business. Logging in the receipt of a pack of ball pens or a dinner with the client during a home visit is easy to forget.
These expenses are generally no more than a few dollars, but they collectively go into the thousands of dollars each year if you keep on neglecting them. We can miss thousands of dollars of tax deductions by simply not reporting them on our books.
These missing expenses can significantly dent your bottom line, especially if you are a smaller real estate firm. After all, even 5% of the profits is a significant chunk.
Also, never lose track of petty cash. Five dollars here, another ten dollars there spent and never recorded will eventually cost quite a bit to your business.
Personal finances and business money should never be in the same place. Some small business owners make the mistake of keeping their own money and businesses funds in the same account. Such a practice leads to confusion, and the business owner often spends more than their share on personal expenses.
Such over-expenditure leads to financial trouble for the business in the shorter and longer run. Always keep separate accounts to avoid confusion and loss of money due to this problem. Also, ensure that you use credit and debit cards associated with the business to avoid spending money out of your pocket for the company.
Bookkeeping is a difficult task, and you can commit errors in different ways. Real estate bookkeeping should be left to professionals due to its intricacies. A slight mistake can lead to substantial financial losses in some cases.
It is ideally left to the professionals at home with the current financial standards and knows how to use them. Other issues such as misclassification of employees and the same account for business and personal expenses should be stopped.
Bank accounts should also be reconciled on time to avoid surprises at the end of the fiscal year. You should also ensure that each expense is recorded and treated correctly. If you can achieve this task, you will undoubtedly avoid long-term issues and gain greater profits.