Sales, marketing, and decision-making are some activities that can’t be ignored in the real estate industry. Real estate agents are not very good with accounting. Some accounting tasks cannot be handled alone. Outsourcing real estate accounting makes sure the accounting job is done accurately. Without correct accounting works, cash flow statements and balance sheets are harder to make. Real estate investors have to understand their financial duties fully.
A well-managed accounting system helps in the proper running of the real estate business. Real estate accounting is all about the minute detailing with the numbers placed correctly.
Top accounting mistakes in the real estate business
- No separation of personal and business accounts
When the business is a sole proprietor, it’s essential to keep the personal expenses away from the business accounts. Further, the tax rolls can be huge if personal expenses are included. It becomes challenging to remember the personal expenses later and which were made towards business. To avoid this, make separate personal and business accounts.
- Not having proper maintenance of accounts.
This is the biggest problem between real estate agents. They don’t keep proper records of receipts and expenses. This makes it impossible to get accurate calculations in the books. Calculations also become pretty uncomfortable since even minute receipts have to be shown. This is true, especially in IRS audits. Outsourcing real estate bookkeeping makes the work less strenuous for the employees. Production of accurate records by real estate bookkeeping provides peace of mind to all other employees.
- No proper classification of expenses
Without control over the tax exemptions on all the expenses, wrong items can be clubbed together. Or sometimes, the real estate agents don’t make any classifications at all. Different expenses have different tax heads, which should be known. Save huge money by classifying them in the correct heads. It gives a comprehensive state of the business and how much it can spend.
- Early disbursements of the funds
It’s best to wait for the official documents to be signed before handing keys to the escrow deposits. But the brokerage firms are in non-compliance with the governing bodies. The money cannot be considered as commission unless the transaction is not closed. For the real estate agents, the funds are disbursed before the actual closing. Negotiations can happen at all times in the real estate business. If the funds are disbursed before the deal is closed, the last-minute commission charges might change. The charges can change, making it hard for accounting purposes.
- Proceeding with the commissions separately
When the commissions are tracked separately, it makes the accounting process redundant. Also, it reduces the transparency in the works. Outsourcing bookkeeping service helps to streamline commission for enhancing transparency. The merging of commissions helps to decide how much is owed to the agents.
Conclusion
The integrity of the information entered is only as good as the data provided. Train the staff on keeping real estate accurate accounting. Try to keep the accounting statements to be current and don’t fall behind on the expenses.