1-888-486-1290 [email protected]
Avoid These Common Real Estate Accounting Mistakes (Solutions Included)

Avoid These Common Real Estate Accounting Mistakes (Solutions Included)

The ‘Bottom Line’, ‘Numbers’, ‘Sales’ are some entities that are self-explanatory in any business. Especially when it comes to real estate, the number of properties sold successfully and an impressive sales record are enough to reflect the business. But, all of this is true if their is uncompromising accuracy, vigilance and standardisation in the numbers presented and their credibility. Which is where experienced accounting comes in the picture. Showing a promising real estate practice on the basis of inaccurate books can be a bane for your business and can tarnish your image in the industry as well as with your clients. 

In this blog, we will talk about the common real estate accounting mistakes that your business needs to avoid in order to get through the tax season seamlessly. If you are cautious to dodge these commonly encountered errors, then not only will your books be accurate, they will also be dependable and actionable.

Mistake No 1: Realigning Funds Before the Transaction is Complete

This is a very common business error, if we may say with property and real estate accounting. The entrepreneurs are seen to be disbursing the funds before the deal is closed. This not only is a malpractice, but at the time of doing the books, is an additional wastage of time for your bookkeeper, as they need to go back and check the completion and the authentication of each transaction that you have made. In accounting terms, a transaction is considered revenue and can thus be acted upon only when the chain is complete, in real estate terms, it is when the keys are finally exchanged. 

It is important for real estate entrepreneurs to keep this in mind at all times while confirming a transaction to be a revenue or before its disbursement. So that, your Accounts Payable are accurately aligned with your Accounts Receivable.

Other Blog – IRS Tax Relaxation Deadlines for Covid-19 (With State Regulations)

Mistake No. 2: Tracking Commissions Additionally From an Accounting Software

When your brokerage is tracking commission additionally and alternatively from the main accounting software that you are using, then you are backing up on age-old data entry to pay those commissions. Honestly speaking, this redundant data entry puts you at a greater risk, with your books being rampaged with human error and threats. 

Ideally, using accounting software or any accounting technology is a matter to make things simpler and more convenient. Therefore, you need to have a commission management system in place that can seamlessly integrate with your accounting system and help make things more convenient for you. 

Mistake No. 3: Insufficient Training of the Accounting Software

If you have an in-house or a local accountant, who you are presuming will be on track with the technological developments and has a proficiency in the accounting software of your choice, then you might be going far-fetched. The idea is that you need to have someone who is an expert and a thorough professional when it comes with dealing with your accounting tools so that bookkeeping is an easier and more convenient feat. If you take it into consideration, having someone who is not-well versed and trained in these tools, will not be able to optimize the efficiency of the same and might make errors. Therefore, it is essential to have someone who is trained and has a smooth knowledge of state-of-the-art accounting tools and technology, especially the ones preferred for use by your business.

Mistake No. 4: Not Taking Backups

This is a mistake that cannot be stressed-on enough. If you are an entrepreneur, then you need to know gone are the days, when people had stacks of paperwork in physical form, that they could go back to and tally whenever needed. This was not only time consuming, but took a lot of space and was adept with errors on all levels. With the coming in of the right accounting technology, you need to save time, effort and error. Taking backups of your data is ever-important so that you have securely kept all your essential financials readily available whenever needed. Real estate businesses are generally seen to lack in this imperative feat. 

Real Estate is an exhaustive and a challenging field. You need to constantly be at your alert-best and on your toes. But the accounting part of it, need not be that dreadful if done the right way. Being on the right road of accuracy, having a dependable team that backs your efforts and avoiding these common accounting mistakes can help you keep up with your books and also get through the year-end stress-free. We hope this blog will help you highlight some common errors, and avoid them in your future accounting journey.

5 Common Property Accounting Mistakes and How to Avoid Them

5 Common Property Accounting Mistakes and How to Avoid Them

Read estate becomes doubly complicated as a business when you add the intricacies of property accounting to it. Being unmistakably accurate is important as a single mistake can tarnish your long-standing reputation. If you know what to look for, then chances are you will be able to avoid those mistakes right from the start. 

Let us look into all the common property accounting problems that you can face, and their solutions to help undo any deterrents in your accurate and updated bookkeeping. 

Problem No 1. Separate Business and Personal Records

A common property accounting mistake, which also a generic accounting error, is the mixing of your business and personal accounts into one. This causes immense financial confusion and is not good for the financial health of your business. Also at the time of filing taxes, differentiating between the two can be hard. To avoid such a confusion and to be able to get through your taxes smoothly, it is important to differentiate between the two right from the starting. 

Problem No 2. Not Waiting For a Transaction to Complete

In real estate transactions it is common that the disbursement of trust or escrowing deposits before the transactions are completed in real estate. Doing so may cause your brokerage to being non-compliant with the governing body. The main reason for the same as that funds are not considered earned and as revenue, until the deal is closed, the transaction is complete and the property is sold completely. In case this protocol is not followed in the above given manner, then all these transactions need to be revisited by your bookkeeper, which in turn wastes time and effort additionally.

You May Also Read – Top 5 Things You Need to Know Regarding PPP Loans Amidst Covid-19

Problem No 3. Not Having the Right Professional Staff

If you have a team backing your financials who are not experienced professionals then all the hard work that you are putting in your books goes to waste. An inexperienced staff will not be able to successfully handle your account management as they will not be able to understand the industry requirements of your organization and the several federal and state compliances that apply. Therefore, the most important thing is to have a team of accounting advisors and bookkeepers who are aware of the nitty-gritties of your industry and therefore can come up with the best strategic bookkeeping plans for your business. 

Problem No 4. Not Taking Taxes Diligently

The tax filing process and its preparation is equally important as doing all the work that goes into it prior to it. Therefore, a common mistake made in property accounting is not following the right filing process and compliance protocols that later have grave consequences. By regulations, you can either use the accrual or the cash method to file your taxes, but this should be attempted to be followed diligently each year. Once you have come to that consensus, you should attempt to stick to it. In such a manner, you will not only be able to reduce your tax burden at the end of the financial year, but you will also get a lot of extra time at hand due to the increased organization.

Problem No 5. Not Taking Backups of Your Files and Data

This is a generic accounting mistake that can affect any business. Gone are the days when businesses used to carry bulks of files and paperwork with them. Now, with the efficiency of cloud-based accounting and digital backups, you can store all the necessary information on virtual interfaces, without having to pay the overhead charges of storing it. You also are able to maintain the safety and protection of this data much better. Additionally, you might lose on some essential information and records, if you have not backed them up effectively. Therefore, it is ever-important to have regularized and standardized backups of all your accounting information from time to time. 

Running a business has its complexities, but taking care of your accounting need not be one of them. With the right accounting strategy, a team of professionals and an untiring concern to avoid common bookkeeping mistakes, you can avoid all accounting hindrances and ace the tax season!