Real estate is a lucrative business. Once it gets going, the profits are way better than in most fields. However, it is a tricky industry and requires a ton of hard work.
There can be quite a bit of paperwork involved in buying and selling properties. Additionally, real estate managers are expected to fulfill all other business formalities like bookkeeping.
Bookkeeping is an extremely crucial task for any business, and it’s important to follow the best practices
In this post, I will list down the most common bookkeeping mistakes made in real estate.
Mistake#1: Not Separating Personal and Business Bank Accounts
This is the most common mistake when it comes to bookkeeping. If you use the same bank account for personal and professional use, it will be hard to separate your business transactions.
Also, you may end up paying for a lot of small expenses out of your pocket. Let’s say you have a business lunch and you don’t mention it as an item of business expenditure. It would reflect inaccurately as a personal expense in your records.
It is imperative to have separate bank accounts for personal and business use to cut out any confusion.
Here’s a pro tip – don’t ever forget to reconcile bank statements every month as they give a clear picture of your income and expenses.
Mistake#2: Not taking Professional Help
Initially, when you are handling one or two projects, bookkeeping may not seem like a lot of work. If you can dedicate a few hours every month, you are covered.
However, as the business grows and your hands are tied in multiple tasks, bookkeeping is the last thing on your mind. And things may start to get complicated.
Now an intelligent business person wouldn’t hesitate in getting professional help. It would free up your schedule, and you will be at peace since an experienced advisor will take care of your finances.
Hiring a professional is an additional expense for sure. However, it will save you a ton in terms of time, mental stress, and taxes. You will be saving money in the long run.
Mistake#3: Not Backing up the Data
We live in a digital world and take full advantage of it. All the bookkeeping is done online now. The internet has made recording data quick and easy.
You need to have at least two cloud resources that have your data. If one fails or collapses due to any reason, you can rely on the other.
In addition to the online backup, you should also keep physical evidence. It is especially helpful in an IRS audit. Make a habit of filing all your receipts. Additionally, maintain the hard copy of monthly bank statements.
Mistake#4: Ignoring the Small Expenditures
It is easy to forget to record small expenditures. You may lose the receipt or ignore it knowingly. However, sound bookkeeping is all about recording each and every detail, regardless of its amount.
These little acts of ignorance can cost you a lot in terms of taxes. You must write down every expenditure if it’s in cash. Otherwise, your account statement can tell you all about your expenses.
I handle small expenditures by capturing images of every receipt and uploading them in a separate folder. It helps to access and record expenses.
Also, knowing all the expenses gives you the correct standing of your business’ profitability. So, it’s essential not to ignore even a dollar – whether it’s an expense or income.
Mistake#5: Not Communicating Consistently
If you have hired a bookkeeper, you should keep them updated with the day-to-day happenings. Your bookkeeper can take care of recording the recurring expenses and income.
When it comes to unique entries, you have to update your bookkeeper as frequently as possible. It is ideal to have daily short meetings. In any case, you shouldn’t withhold information for more than a week.
Your bookkeeper can only help if you timely provide essential information. The delay will only complicate the process, and you may forget a thing or two in the meanwhile.
Mistake#6: Incorrect Classification of Employees
As a real estate manager, you probably work with a variety of employees. Some may be your permanent hires, while others will be contractors or freelancers.
You must mention their correct status when bookkeeping as you don’t want to misfile your employees and overpay taxes.
For me, bookkeeping is a sure way to locate where I am spending the most and what are my income generators. It gives me an insight into the next move to grow my business.
That’s why I ensure my bookkeeping is accurate so I can pay the right amount of taxes, spend smartly and earn maximum profit. Keep these bookkeeping mistakes in mind so you don’t lose money in the long run. Good luck!