A good bookkeeping system helps you maintain your records, prepare for tax season, and gain an important perspective of what projects are costing you.
Key takeaways
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General best practices include using automation, performing reviews, and proper categorization
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Track the right KPIs
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Remember to keep records for tax purposes
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Start cost accounting to track the performance of each project
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Update your accounting process with a software
An effective solution for real estate bookkeeping will keep your business on track for growth. This involves using the right technology and automation tools, as well as understanding best practices for accounting. Your projects depend on accurate budgeting and in-depth cash-flow analysis, both of which require a high level of organization and appropriate measures for setting benchmarks and tracking success.
We will be walking you through general bookkeeping advice before diving into four top tips for real estate accounting.
General best practices for bookkeeping
Here are a few best practices to keep in mind when improving your bookkeeping approach:
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Use automation tools. Gone are the days when you have to input everything manually into an Excel spreadsheet. Consider using a tool like QuickBooks for basic accounting purposes that will take on this work for you.
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Perform regular reviews. Bookkeeping is not a system you can set up once and be done. You need a system for regularly reviewing your records, likely every quarter, to watch for trends or changes to profits.
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Know how to categorize. Your income statement will include all your revenue and income avenues, expenses, and other costs.
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Know your accounts. Any business generally has six overall accounts: assets, liabilities, equity, revenue, expenses, and costs.
Remember that bookkeeping involves tracking all your transactions, and accounting is often more intricate and includes in-depth analyses and reports.
Here are a few additional bookkeeping tips for real estate.
1. Track the right KPIs
Real estate bookkeeping helps you keep track of business metrics or key performance indicators (KPIs). They give you visibility into how your real estate business is doing. KPIs to consider tracking and analyzing include cash flow, revenue per client, cost per client, conversion rate, credit score, and many others.
Cash flow is an especially important aspect of bookkeeping. A cash flow analysis involves recording all income and other cash coming in and comparing it with all costs and expenses. Areas within the statement of cash flow may be operations, investments, debt, and equity.
Examining these areas, both in how money comes in and how it goes out, gives you valuable information about your financial position. It also helps you uncover ways you can cut back if you’re having trouble staying within your budget each month or for each project.
2. Prepare for taxes
There are also many components of bookkeeping that impact taxes. First, make sure you always keep and track your receipts for all business transactions. This will ensure that you have the precise and correct numbers to report on your tax return for expenses. It also helps you stay organized throughout the year.
It’s also helpful to keep organized records of all of your bank statements, insurance documents, and previous tax returns for easy reference, so you can compare your finances and tax burden from one year to the next.
When you are itemizing your income and expenses, make sure you pay attention to the categories that the IRS uses. This will help you track them throughout the year. These are categories like advertising, auto expenses and travel costs, insurance, legal and professional fees, repairs, supplies, depreciation, and more. If you already have these categories in place in your own systems and documents, it will be much easier to complete your tax return with accurate information.
The right real estate bookkeeping strategies help you prepare for tax season with organization and tracking methods that ensure accuracy and effective reporting to the IRS.
3. Track job performance
Real estate developers and contractors should also have a method to track each job to assess budgets and performance. Cost accounting allows you to do just that. Start tracking all production costs, fixed and variable costs, and direct and indirect costs so you can make better decisions and understand how much each deal actually costs you.
When your business earns on a project-by-project basis, cost accounting monitors the income and expenses associated with each job, allowing you to plan for future projects, recognize revenue accurately, and assign it to specific outcomes.
4. Update your accounting system with a software
The most effective way to create a bookkeeping system is to make sure it’s organized and accessible. You need an automated solution that will gather data from your accounts and help you monitor and categorize transactions. It’s crucial for your real estate business that you keep accurate financial statements to better prepare for the future and to evaluate how each of your real estate projects performs.
To accomplish these goals and create a system that works, update your accounting system with software that will help you manage these tasks. Software will take care of a lot of the time-consuming details for you and can help you get a better picture of your finances in moments.
Why work with Franco Blueprint?
The Franco Blueprint team is committed to helping you implement an accounting system that will help you succeed. We help you incorporate a new system that works with your existing processes and streamlines your workflows. Our team members can meet with you for a free general consultation if you have any questions about starting a bookkeeping system.
Contact Franco Blueprint to get started with our team and start seeing big results.