Real estate business is complicated and when you add property accounting to the mix, it becomes doubly so. A single mistake can cost you millions, not to mention your firm’s reputation. But a lot of these mistakes are just financial blunders that can be corrected if you know what to look for. Here are some common real estate accounting mistakes and what you can do to avoid them.
Not Maintaining Separate Business and Personal Accounts
Commonly real estate agents conduct their business in a personal manner but fail to maintain a separate account for business. This not only causes confusion but is not financially healthy too. Recollecting business expenses at the time of tax calculations can also be difficult. To avoid such confusion and for smoother business processes, you should always maintain separate accounts for your business from the beginning of your business. Commission checks should also be deposited in your business accounts.
Not Waiting for a Transaction to Complete Before Disbursing Funds
It’s quite usual to disburse trust or escrow deposit to all the involved parties before a transaction officially closes in real estate transactions, but it’s not a good practice. Doing so may cause your brokerage to be non-compliant with the governing body. This is because this money is not considered commission until the deal is closed and keys are exchanged. Last minute side agreements that may result in a reduction of commission disbursement can cause checks to be redone, increasing the work for your bookkeeper.
Not Following the Tax Filing Process
Incorrectly filing your taxes can impact your real estate endeavors. Actively following tax rules and guidelines can help you save more. You can use accrual or cash method for filing your tax, but whichever method you should be followed every year consistently. Consider all your options before deciding which method would be best for you. Being prepared financially is always a wise choice, and not doing so could increase your tax burden rather than reducing it.
Not Getting Your Books Evaluated by Experienced Staff
If you have budget constraints, you might consider letting inexperienced staff manage your property management accounting and file your tax returns. While this might help you save overhead costs, it will cost you in business. If your accounting is not done by an expert who knows your industry norms well, you might end up creating havoc in your business. It is advisable to get your accounts managed by experienced professionals who have been working in the industry for a while. These experts will also know the latest accounting software that can help make your accounting process smoother.
Not Backing up Data Regularly
You wouldn’t want to end up losing important client details and property information because of an inconsistent backup system, right? But this is a common mistake in the business industry and happens to the best of us. Over 40% of data loss is usually caused because of software corruption or mistaken deletion. And when dealing in millions, such data loss can cause heavy losses. To avoid such scenarios, ensure you have a safety net in place. Installing an accounting solution that automatically backs up data regularly is an advisable solution.
Today, there is enough technology to make real estate accounting easier and error-free, it’s just a matter of knowing which one is best for your business.