The real estate business is tricky and volatile, to say the least, if you add bad accounting particles to this mix, then it gets even more complicated. It can end up costing you millions and also cost you your reputation as an authentic real estate business.
Accounting and back office are not the first things that real estate property managers think about. It is almost like an afterthought for most. But part of knowing the insides of your business lies in accounting. Why? Simply because accounting forms the backbone of your real estate business. From payments, cash flow, basic finances, budgeting, everything depends on your accounts. Though this might be uninteresting work, it can make or break your business, to say the least.
7 common mistakes to avoid in real estate accounting
You need to start from scratch when it comes to accounting. You need to get a better understanding of accounting in general and the specific accounting needs of your system.
There are an umpteen number of mistakes that businesses commit along the way. Though these are very gross mistakes and seem negligible to the naked eye, they make up a very faulty system. So, how do you not let accounting become a big issue? What signs should you look out for? Here are the most common mistakes that real estate businesses make in their accounting process. Read on to know in detail.
1. No proper data classification in departments
Classifying financial data in real estate can be tricky. From separating capital expenditure from normal maintenance and repair costs, there can be a lot at stake. Discrepancies in these data can also send wrong indications to auditors and tax departments. This is exactly why you need to clearly divide data based on departments and expenditure types.
It is also crucial that you back up these data in a cloud platform. Why? Studies say that more than 40 - 60% of small businesses close down permanently after a complete data loss. A real estate firm of any size deals in millions and has multiple stakeholders to answer to. If you lose crucial financial data you will set yourself up for bigger problems. So set up the safety net of cloud data backing to avoid this.
2. Incorrect financial record keeping
If you are a real estate project manager or business owner loans are essential for construction work. But if you do not have your financial records straightened out then no banks and financiers will disburse loans to you. It will eventually delay your work and affect the credibility of your business. It is in the best interest of your company to keep the financial records healthy to avoid such scenarios.
3. Disbursing funds before deliveries & services are finished
It is quite an informal but known practice where real estate agents release trust or escrow before official confirmation. You might be dealing in good faith with your long term clients and vendors by disbursing funds based on word of mouth. But it is also an open avenue to initiate fraudulent payments. If not that renegotiations can also take place at the last moment and the actual commissions may end up changing. This difference in amount may cause a problem during month-end book closing.
4. Not separating personal and business bank accounts
The real estate business has a sort of personal touch to it when there is client handling. Buying, selling, renting homes is bound to have that when real humans are involved. But some real estate managers end up mixing the personal and professional even in their accounts. It causes confusion and is financially unhealthy for all parties involved. This will only lead to jumbled up bookkeeping at the month-end. You will need to manually scavenge through your personal and business bank accounts to add up your transactions and close the books.
Separating the accounts will also save you from other audit liabilities, tax problems and legal issues.
5. Failing to keep up with tax filings
Filing taxes on time and following all regulations will benefit you by staying in the good books of the IRS. If you fail to keep up with these you will be liable to fines and penalties, eventually losing out on a lot of money.
6. Not having experienced accounting staff
When there are budget issues sometimes real estate companies use staff from other departments to do the accounting. But accounting is a highly skilled job. The overhead cost of having your own expert accounting team is expensive and can burn a hole in your pocket.
This is where KriyaGo’s outsourced bookkeeping services can help you. Our team of professional accountants can streamline the work and flag all discrepancies and close the books on time. More than 24% of small businesses get outsourced help to ease their work. You need to take inspiration from it and outsource your back office work to save more than 60% in costsand time.
7. Trying to track commissions separately
If you track and check commissions separately from other account works then you are simply doing the same data entry twice. You are wasting manpower and spending money on it. Multiple data entry only sets up your system for more human errors. You need to merge your commission tracking and accounting system. You can effortlessly track what is owed to which agent and also avoid all data overlap.
Final Thoughts
In the present world, there is enough technology out there to make accounting work easy for your real estate business. As a real estate property manager, you just need to know which works best for you. A good technology selection in property management and accounting can help in your growth.
The KriyaGo team of expert accountants and technology consultants can do that for you. Do not let the monotonous office work get to you. Our outsourced accounting services will get the tedious accounting work done for you. Our team of experts have been solving accounting problems for clients for years and have helped them save both money and labor. Book a consultation with us to know more about our services.
