Take Your Real Estate Business to the Next Level
For many small business owners, daily operation of the business requires managing a lot of moving parts. This is especially true for real estate professionals who often work remotely from their vehicles, between showings and inspections. Receipts and invoices are tucked away to be handled later while the agent is busy fielding calls from buyers and sellers – all the while working (sometimes frantically) towards the next close. So its no surprise that, more often than not, the day to day maintenance of their financial records goes unattended. So often we hear real estate professionals say that don’t know their numbers and that they have accountant that handles all of that at tax time. And I always cringe. Being a real estate agent is also small business ownership, so if you are not managing your finances in a timely manner, you are doing your business a huge disservice.
In order to be your most effective, it is important to know the true financial health of your business. Ensuring proper and timely handling of your bookkeeping means that you are able to keep tabs on the current state of your affairs and provide better forecasts for where you want to be. Waiting to clean up your records until tax time put the business owner at a firm disadvantage for proper tax planning. In an industry where one sale could determine your tax bracket, this knowledge is key to current business profitability and making year end decisions for tax planning. In March, it is too late to take advantage of many of the Strategies that may have been available to you in December.
Enacting good bookkeeping habits, regardless of the state of your business, can make major impacts to how you operate. It allows you to keep a close eye on costs and income sources along with plan for things to come. Using robust tools such as QuickBooks Online and apps like Dext and MileIQ, you can almost immediately begin to see what income areas you may want to focus on and where you may need to scale back. It ensures that you are accounting for all out of pocket expenses (which is extremely important at tax time) and will allow you to make more informed decisions.
What impact does bookkeeping make on your business?
While each industry is slightly different, the importance of applying bookkeeping best practices to your workflow maintain the same. Business success is directly connected to enacting this mindset. Keeping a current handle on your numbers means:
• Real time tracking and analyzing of expenses
• Document management means less stress at tax time – the paperwork is already sorted and ready
• Better cash flow management
• Monitor your business growth
• Provides the ability to proactively change course in tax planning mid-year and not be reactive at year end
• Ensures you are compliant rather waiting to find out that you weren’t
Important things to track and monitor:
Out of Pocket Expenses
We all have them. Especially as we build our businesses. But how much are you really spending out of pocket? This is a question most of our clients are surprised to learn the answer to, yet it is a very valuable number at tax time. Money in out of pocket, can affect money out – taxable money out.
When was the last time you reviewed your personal contribution to your business?
Travel Related Expenses
Especially important for real estate professionals, is proper tracking of travel and travel related expenses, including mileage. Diligently using some user friendly technology, like MileIQ, can quickly monitor your true mileage from all of the driving to and from properties. How about parking fees? Those can add up fast.
Marketing and Memberships
Place an advertisement in a local magazine? Sponsor a high school play? Do you belong to networking groups with annual membership fees? These are all costs that are small individually, but can be surprising when we properly track. Many of these may be deductible.
Income and Firm Related Fees
This seems basic, but often times we find people have a general idea of their income, but when we properly track it within the accounting software, it is seldom where they thought it was. For real estate agents, you may be required to pay fees as a percentage of your commissions to your firm which makes the amounts paid out a trackable expense.
Other General Expenses
When properly reconciling and coding your banking activity, we are also ensuring to account for many other expenses that are important at tax time like office supplies and education expenses. Coding all of those as we go through the year helps you know when you may need to reel in the purchasing of post it’s or when it may make sense to spend the money on a fixed asset purchase like a new laptop. Easiest way to have the conversation with your accountant is to hand them a current P&L and Balance Sheet.
Separating Business Accounts & Streamlining Processes
While the list above may seem overwhelming, enlisting the help of a knowledgeable bookkeeper is a very easy step to making it simple. We are familiar with the latest programs and technology available to help achieve clean, current books. The first, and most important step in the process – regardless of the stage of your business – is to establish a separate business account. Commingling finds is never a good idea and not only will it ultimately create headaches, it creates red flags for an IRS audit.
Although you may still need to contribute out of pocket for things, bookkeepers can account for those transactions properly in your file and ensure that the expenditure is tracked correctly. Some ways that we do this with our clients is to use apps that allow for extremely easy uploading of receipts into a program that we can sort and save in. Gone are the zip lock bags of random receipts that you tote around until tax time then shove in a file cabinet…. Replaced by a quick snap of a picture then tossing the paper into the recycling (or shredder).
The last few years have been unprecedented and extremely complicated for real estate agents. COVID protocols including virtual showings, have forced the industry to operate in many unexpected ways. Many of these changes have been out of your control. However properly managing your finances is easily within your reach. Small changes in your routine can yield huge results and create significant opportunity for increased profitability.
What are you waiting for?