Why would realtors need an accountant? Many reasons make the process of hiring an accountant for your real estate business inevitable. Real estate accounting may seem daunting to the uninitiated. There are many regulations and transactions involved with the real estate business. If you don’t have a clear idea of all these bookkeeping aspects, you will be in trouble as a realtor.
If you want to manage real estate accounting books properly, you should keep everything organized. That is where the importance of having a standard process to collect financial information. Realtors must select an accounting method. It is also necessary to develop a systematic filing and tracking system. A real estate agent should know how to pay their employees and other associates. Let us discuss the most important reasons that make hiring an accountant is essential.
– Choosing an accounting method
– Collecting and entering financial information
– Periodic analysis of the information collected
– Identifying new growth opportunities
Choosing an accounting method
As a realtor, you need to choose an accounting method. In fact; all types of businesses need to have a proper accounting method. There are two accounting methods available to you to choose from; cash-basis accounting, and accrual accounting. To record transactions, these two methods utilize slightly different rules.
You need to choose the right option that suits your real estate business. It is necessary to do some research before selecting a method. An experienced accountant has the knowledge and expertise to choose the right method for their clients.
Cash accounting refers to making one entry each time when a physical cash exchange occurs. It is a simple method to enter transactions. Accounting professionals record income and expenses on your books accurately.
Accrual accounting is a bit more complex than cash basis accounting. Your accountant records at least two entries for every transaction. Recording two equal but opposite entries, your accountant makes sure that the books are accurate.
Collecting and entering relevant financial information
If you don’t know how to gather and enter financial information, you won’t be able to keep financial matters organized. That is when you need to hire a professional accountant to get these jobs done efficiently. After identifying the most suitable accounting method for your real estate business, an accountant gathers and enters all relevant financial details.
You can change from one method to another based on the emerging situations. Your accountant seeks the permission of the IRS to use a different accounting method. The bottom line is that professional expertise always helps you gather and enter financial information on your books accurately.
Periodic analysis of the information collected
When you have the data, you need to make periodic analyses of the financial information collected. This approach helps you evaluate the processes and measure your business profitability. Experienced accounting professionals perform this task with clinical precision. So, realtors need an accountant to make their businesses successful.
When you manage your books and track your progress efficiently, you can run your business better. A skilled accountant prepares year-to-year growth charts so that you can compare them to assess your progress. With the help of an experienced accountant, you know how much cash you have on hand all the time. Preparing your tax return becomes a hassle-free process. You can also pay bills on time to avoid fines and other related issues.
Identifying new growth opportunities
Collecting information, monitoring and evaluating the gathered data, preparing tax invoices, and making payments on time, an accountant makes things extremely transparent and convenient for realtors. When you keep up with financial records and discover issues on time, you can make the necessary changes to optimize the growth. So, the entire process of identifying new growth opportunities becomes easier and efficient as well.
These are the fundamental reasons that make the services of an accountant inevitable for a realtor. An accountant brings a lot of expertise and knowledge to help you assess the financial condition and make smart business decisions that optimize your business productivity. Here are the most important benefits offered by an experienced:
– Better understanding of administrative codes
– Setting up your chart of accounts
– Creating separate accounts for business and personal funds
– Organizing supporting documents smartly
– Calibrating and expediting payment collections
– Reconciling books with bank accounts
– Developing a systematic payment plan for employees
A better understanding of administrative codes
All realtors or property managers have to follow financial management guidelines laid out by the real estate commission or state agency. Your accounting practices need to comply with these guidelines. That is to say, the accounting books of all realtors are legally bound to follow the rules administered by their states.
It can be extremely difficult for you to understand the administrative codes. You need to have a clear idea about them before you do any bookkeeping. Realtors must also make sure that they stay up-to-date with any changes in their state’s codes. It is always advisable to hire an accountant who specializes in real estate to make your life a lot easier. Experienced professionals are highly knowledgeable about administrative codes and help you stay informed.
Setting up your chart of accounts
A chart of accounts is required to record and organize the accounting journal entries of a realtor. It contains all real estate transactions that you make. When it comes to creating financial reports, assessing performance, and locating historical transactions, a chart of accounts is the best source available.
An experienced accountant creates different categories or accounts while setting up a chart of accounts for a realtor. Some of the popular categories you can find in a chart of accounts are Advertising, Management Fees, and Insurance.
Whenever you make a transaction, the accountant enters it under the relevant account. Extra columns are added to provide more details about the transaction. You can even find a small note for each entry that gives you a fair idea about the purpose of the transaction.
Accounting professionals focus on updating the chart of accounts frequently to maintain high accuracy levels. Every transaction is recorded on time, and balances are calculated precisely. Realtors always depend on the chart of accounts to make financial reports and track financial health.
Creating separate accounts for business and personal funds accounts
Accountants create separate accounts for your real estate and personal transactions. This method helps you keep the business funds in one place. When you look at the bank statements, you can easily find information on processed transactions and pending ones. If you don’t follow this method, you will find it extremely difficult to distinguish between personal and business accounts. This situation leads to many problems, including:
– Mixed up or cluttered books
– Wrong cash flow management
– Erroneous tax returns
– Unnoticed growth opportunities
When you have separate business and personal accounts, you can manage your business transactions more efficiently and stay organized. A bank account exclusively dedicated to your real estate business adds to your credibility as a realtor.
Organizing supporting documents smartly
An accountant always maintains the supporting documents to make your books look organized. You can use these documents to address discrepancies. With proper organization of your real estate documents, accountants assist you in managing records easily and fast. The most common supporting documents include:
– Bank statements
– Tax returns
– Leases
– Invoices and receipts
– Insurance information
– Credit card statements
– Contracts
Based on your preferences, an accountant keeps a hard copy or a digital version of these documents. Establishing an organized filing system, accounting professionals keep track of your finances precisely. Whenever you need one of the files, you can locate it fast. If you store files digitally, they help you discover a reliable and safe platform.
Calibrating and expediting payment collections
Growing realtors have to clearly focus on payment collection. If you don’t stay on top of your payment collection, you will have to deal with financial crises. Many realtors consider it a tedious and hazardous activity. An accountant helps you stay on top of your payment collection.
How does an accountant expedite the payment collection process? Creating effective payment terms on invoices, experienced professionals make payment collection a lot easier. The terms and conditions provided on the invoice influence how fast and frequently you get paid. The payment platform also makes an impact on your collection process. Skilled accounts utilize the following methods to make your invoice terms better and payment collection more efficient:
– Adding all relevant information, including the amount, due date, and contact details
– Preparing clear and shortened payment terms
– Numbering the invoices to stay up-to-date with outstanding bills.
– Timely disbursal of invoices
– Developing a clear process for errant clients
– Dividing large invoices into multiple payments
Accomplished accountants use the most advanced software solutions to perform administrative tasks. There are smart technologies that help realtors develop an effective payment collection system. Some of the software products let you create custom emails and send automated personal messages to your clients. An experienced accountant utilizes software solutions that are specifically designed for real estate professionals to improve the payment collection process.
Reconciling books with bank accounts
An accountant helps you reconcile your books with bank accounts. Having firm control over the transactions is one thing. However, you should also confirm that that the transactions are reflected in your bank account. That is exactly why an accountant reconciles your books with your bank account constantly. It is often done weekly or monthly. This reconciliation process helps you discover any discrepancies in your transactions. It also allows you to flag any outstanding payments.
With the help of the reconciliation process, an accountant ensures that your balances do not show any false information. When you seek the help of trusted accounting professionals, they look for accounting errors, timing delays, and other factors that lead to discrepancies. The supporting documents are checked to verify correct entries.
Developing a systematic payment plan for employees
As your real estate business starts growing, you need to find new ways to manage your resources and properties. Realtors often hire salespeople consistently to drive more clients. It is also necessary to work with associates to expand the business. Your employees must be properly classified as employees or independent agents. Employee classification errors may result in expensive audits, unwanted interests, penalties, and back wages.
If you hire an experienced Palm Beach accountant, you don’t have to worry about all these aspects. Classifying workers accurately and following all the rules and regulations; an accounting professional makes life a lot easier for realtors. Realtors offer a fixed salary for some employees. Some others work on commission. There could also be workers who earn both salary and commission. An accountant considers all these aspects before creating a well-thought-out plan.
You need to have a clear idea about how to pay them. When a commission is paid along with a regular salary, you must add it to the paycheck of the employee based on a bi-weekly or monthly schedule. It is also necessary to withhold taxes from commissions. Developing an organized payment system for employees, an experienced accountant takes care of all these aspects. You can focus more on other important tasks that help you grow your business fast and sustainably.
Property management becomes a systematic process with real estate accounting. When you work as a real estate agent, you are dealing with large sums of money. If you don’t know how to manage these transactions, you won’t be able to take your business to the next level. An experienced accountant helps you choose an accounting method, gather financial information, and perform the analysis of the details collected to keep your financial matters organized. When you have detailed financial data and accurate analysis reports available, you can make informed business decisions fast.
Realtors can seek the help of an accountant to understand administrative codes, set up their chart of accounts, create separate accounts for business and personal funds, organize supporting documents, calibrate and expedite payment collections, reconcile books with bank accounts, and develop a systematic payment plan for employees. Offering invaluable knowledge and expertise, accounting professionals always help realtors improve their business productivity considerably.