Professional real estate agents have to manage a lot of tasks. They have to keep up with clients, finances, listings and maintaining the personal business networks.
The success of a business not only depends on the ability to connect with people, sell products but also on having proper knowledge of all administrative tasks. The accounting principles of real estate can easily make or break your business within no time.
In the real estate business, the accounting process helps in creating accurate reports and maintaining financial records for buying and selling process.
This article will cover:
Is Accounting necessary For Real Estate Agents?
There are several reasons for real estate agencies to have effective accounting processes. Even you have a small scale real estate business, even then accounting is considered to be the most important element. Accounting in real estate companies is necessary because:
- To get a high-level perspective of the financial situation of the company.
- The track of business growth on yearly basis.
- It manages the cash flow.
- It helps in seeing the red flags.
- It streamlines the yearly tax returns
- It gives a clear picture with accurate records
The True Goal of Real Estate Accounting
Real estate agents need to develop the habit of proper accounting procedures to avoid any hassle and to maintain professionalism as well.
The major goal of real estate accounting is to provide a realistic and accurate picture of the business growth at any given point. It helps the business owner to take firm and long-term decisions for the company’s benefit.
While this doesn’t require complete knowledge of everything there is to know about financial management, it does require a willingness to learn, make changes, and stay on top of important accounting tasks.
Basics of Real Estate Accounting
This article will provide you with an in-depth analysis of real estate accounting techniques. These basics will help you keep proper track of your work.
1. Income From Commissions
Real estate agents normally generate their income from selling the property and also from all the commissions associated with every closed deal. It is important for real estate professionals to properly check, track, monitor all the incoming sources of cash.
2. Association Fees and Expenses
Sometimes real estate agents have to share some of their owned commission (as a percentage) with a firm or brokerage. This amount is basically called an expense. Moreover, real estate agents also pay the membership fee to different associations and other organizations which are also counted as deductions.
3. Educational Costs
Keeping a real estate license also costs money. This money can be in form of any renewals or also for continuing education classes. Make sure you add these costs to your yearly accounts.
4. Office-related Charges
Like every business, the real estate business also requires office supplies and other tools for administrative works. The large expenses cover rent, events, gatherings, cleaning and maintenance.
5. Marketing Expenses
Marketing is one of the essentials to spread your word to everyone. The marketing expenses can include:
- Website design
- Social media manager
- Print advertisement
- Online advertisements
- Business cards
- Conducting seminars
- Arranging events
6. Travel, Mileage, and Transportation
The real estate business requires a lot of travel to deal with the clients and visit all the sites. These charges should also be added to the real estate accounting procedures.
Real Estate Business Strategies
In the real estate industry, the four basic business strategies can keep your business organized and properly planned.
1. Conducting a Monthly Review
If you get accounting software, then most of your work will be automatically done, but it is important to check the records on monthly basis.
Even if you have an accounting manager, even then you should see your manager monthly or biweekly to review the incoming cash and outgoing expenses.
2. Use Accurate Reporting Procedures
Once you are sure that your financial data is accurate, you can easily pull all your business account reports like:
- Income streams
- Outgoing cash flow
- Tax documents
- Profit and Loss detailed statements
The automatic system is much easier than the manual checking of the data. It is error-free and it also saves a lot of time.
3. Separate Personal and Business Funds
If you want to stay organized and calm, then it is better to separate your personal and business accounts. Having s separate business account makes it easy to keep a record of all business transactions.
4. Learn Local Requirements
Real estate is more of a local game. The rules and regulations of real estate work differ from place to place. It is best to familiarize yourself with the local rules of the real estate business to stay in the game.
Along with personal preference, a real estate owner must stay in compliance with his own country and city regulations regarding real estate.
Common Real Estate Accounting Mistakes
Mistakes are a part of human life and it is absolutely fine to commit mistakes and learn from them. Here we have listed a few basic real estate accounting mistakes that you can easily avoid:
- Always create a backup of all your data.
- Don’t lum all the expenses together. All taxes should be filed separately.
- Properly verbalize your demands
- Give reminders for tax statements, documents and purchase proofs
- Don’t rely on anyone completely. Keep a check on everything.