As a real estate investor, you probably enjoy buying, selling, or developing properties. The excitement of these things often outweighs the mundane tasks, like making sure you have a good system for commercial real estate accounting.
However, if you really think about it, your bookkeeping process can make or break your real estate success. A few small mistakes or an overlooked expense can be catastrophic. Without an accurate picture of the money going in, the money going out, and data trends over time, you could be in big trouble. No matter how tedious it may be, a good commercial real estate accounting practice is essential to the success of your business.
Executive Summary
- Accurate CRE accounting requires consistent transaction recording, regulatory awareness and organized supporting documents.
- Owners should track the core accounting elements and review cash flow and property performance regularly.
- QuickBooks provides the accounting foundation while connected CRE tools can improve document organization and portfolio visibility.
Following Best Practices for Commercial Real Estate Accounting
Whether you’re handling your own bookkeeping or outsourcing it, the best practices remain the same. This is true no matter the size of your real estate company. Don’t let your accounting system get in the way of meeting your goals! Here’s what you need to keep in mind when developing a commercial real estate accounting system.
Understand the laws and regulations
State and federal governments mandate specified accounting standards. The Financial Accounting Standards Board, or FASB, sets these standards. Maintaining accuracy when reporting your income is very important, as the IRS will scrutinize it. If you fail to comply with regulations, your business could face legal prosecution.
Use a good accounting software
A robust accounting software like QuickBooks is the ideal choice for your real estate business. Cloud-based software like QuickBooks Online lets you access your financial information anywhere. Plus, it allows you to easily share data with the rest of the team. Ensure accurate bookkeeping by recording each and every financial transaction in the same place.
Know the five elements of accounting
Assets, equity, liability, expenses, and income are the five basic elements of accounting. You must be sure to include each of these in your reporting and recording in order to get a full picture of your accounts and finances. You can learn more about the five elements of accounting in this Accountingverse article.
Be aware of taxes
To ensure accuracy and to take advantage of tax savings, you need to keep track of the various taxes you’re responsible for. With careful accounting, you could benefit from several tax advantages. Benefits include deductions for depreciation, maintenance, upkeep and more.
Have a system for organizing your documents
File all your documents – lease agreements, invoices, etc. – in one central location. This makes it easy to double-check for accuracy and ensure that every financial transaction is being properly recorded. Within STRATAFOLIO, we offer the ability to upload and store files in a secure, organized location.
Review performance metrics regularly
To get the most out of your accurate and thorough accounting system, you should regularly review your performance metrics. This allows you to estimate cash flow, monitor the performance of individual properties, view your financial performance over time, and make better financial decisions.
Frequently Asked Questions
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What are some of the accounting documents I will need to run my commercial real estate business?
Some key accounting documents include a chart of accounts specialized for commercial real estate, a rent roll, a profit and loss (P & L) statement, among others. It is always a good idea to consult an accounting professional to ensure you have everything you need.
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What is the best software for commercial real estate accounting?
While different commercial real estate businesses have different accounting needs, QuickBooks is an excellent accounting software choice for its familiarity and reliability. It is especially useful when integrated with a commercial property management software like STRATAFOLIO, so you can access all your data across both specialized platforms.
Combine QuickBooks with STRATAFOLIO for best results
Accounting is an integral part of your commercial real estate business. Combine QuickBooks with STRATAFOLIO’s advanced operations management and analytics tools, and you’ll be able to gauge the progress of your business at a glance and make better business decisions. Get in touch today to learn more with a free one-on-one consultation.
