Efficient and error-free bookkeeping is vital to every business’s success, and real estate is no exception. Well-maintained books provide critical insights into the overall health of a company and help in deciding on significant improvements and business expansion. This article will discuss three common bookkeeping mistakes in Commercial Real Estate and give you tips on what you can do to avoid them.
Real estate bookkeeping involves several complex processes and procedures. Therefore, a minor bookkeeping mistake can result in severe monetary losses as well as compliance issues. A U.S. Bank study by Jessie Hagan found that about 82% of businesses fail due to poor cash flow management skills.
Importance of Efficient Bookkeeping in Commercial Real Estate
Efficient bookkeeping practices in real estate are essential for a variety of reasons. Some of the benefits include:
- Saves time and money
- Allows performing record-keeping tasks more efficiently
- Alleviates the stress related to tax payments, tax returns, and audits
- Enables you to manage your commercial real estate properties more efficiently
- Ensures accurate, timely, and efficient CAM reconciliation by streamlining the entire process
Here are three bookkeeping mistakes real estate business owners make when approaching their company’s finances.
Bookkeeping Mistake #1:
Overlapping Expenses Categories
The first bookkeeping mistake is creating overlapping categories for expenses. Maintaining a clean and organized record of expenses is critical for faster and efficient bookkeeping. Most costs incurred at a real estate business are pretty standard and straightforward. But business owners often create duplicate categories or fail to enter expenses under the correct category.
Without proper categorization of expenses, you are likely to group the wrong items together. As a result, you will either miscategorize or overcategorize expenses. It is important to mention here that individual expenses may be taxed differently. Through proper categorization, you can save a lot of money. Additionally, categorization also gives a clear picture of your current financial position.
To ensure you list your expenses properly, use standard categorization guidelines for bookkeeping. Starting a chart of accounts from scratch can be complicated, but STRATAFOLIO provides a detailed explanation of best practices in Setting up a Chart of Accounts for a Commercial Real Estate Company.
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Bookkeeping Mistake #2:
Not Having a Secure Records Backup
Like most other businesses, real estate business owners are also going paperless by adopting cloud backups. As of 2019, 94% of small-sized organizations had switched to cloud backup. There are several benefits to becoming a paperless office, including:
- Time savings
- Easy accessibility
- Less space consumption
- Better communication
- Improved Customer Service
But this does not necessarily mean that paper backups have gone entirely obsolete. While digital record keeping has its benefits, going paperless has several disadvantages as well: 1) your data is open to security risks and viruses, and 2) technical problems can make a paperless office a liability during audits.
That said, digitalization of receipts, without a doubt, streamlines & simplifies day-to-day operations. To avoid any security risks or loss of data, you must select a company that offers a safe and secure server for records storage.
Bookkeeping Mistake #3:
Trying to Do it All
Another common bookkeeping mistake that most real estate managers make is trying to maintain their books, despite having a minimum understanding of finance. According to one survey, 60% of business owners agreed they aren’t knowledgeable enough to maintain books.
While bookkeeping is an essential part of running a real estate business, the fact is that not everyone is good with numbers. And, not everyone knows how every transaction type should be recorded. That’s why you should consider the option of hiring a professional bookkeeper to sort out your business finances. An experienced bookkeeper has the required skill set to perform accounting tasks quickly and efficiently.
Protip: Take a bookkeeping class, even if you are planning to outsource bookkeeping services. If you don’t know the fundamentals of real estate bookkeeping, you will not be able to evaluate the performance of bookkeepers and the accounting tools they use.
Once you have decided to outsource bookkeeping, supervise but do not micromanage. Only an expert eye can spot subtle errors that a manager with no accounting background might miss. Besides, as professionals, they are also aware of regulatory changes that could affect the financial health of your business.
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It is high time to save yourself and your business from these bookkeeping mistakes! The health of your business depends directly on the health of its finances. You can always outsource bookkeeping to manage complex tasks.
It is only with proper tracking and monitoring that you keep an accurate record of cash inflow and cash outflow. Once you start understanding your real estate finances better, you can make better business decisions and save money in the long run.
The STRATAFOLIO Solution
STRATAFOLIO is an online software solution designed specifically for people who own or manage real estate, use QuickBooks, and want to streamline their operations to save time, increase profits, and reduce manual work.
STRATAFOLIO syncs with QuickBooks to roll up your company’s financial data in one easy-to-view location and also includes secure cloud storage for your documents. STRATAFOLIO’s expansive digital toolset provides your commercial real estate operation with the agility and adaptability needed to maintain costs and pursue financial resiliency.
Would you like to learn more about what STRATAFOLIO can do to help you manage your Commercial Real Estate Properties? Schedule a 1:1 demo to see how STRATAFOLIO can improve your operation, or contact us for more information.
About the Author
Carole Anne is the bubbly head honcho of Key Admin. She’s a BAS Agent Member of the Institute of Certified Bookkeepers, a Certified Xero Advisor, Advanced QuickBooks Online Advisor and has an Advanced Diploma in Business and Finance.