Being in the real estate business can be an enriching experience, especially when managing a large number of properties or having large-scale contracts. It is an opportunity to make a positive impact on the lives of others and grow your business simultaneously. However, between taking care of all your clients and managing a business, one of the most challenging side tasks realtors also have to do is keeping track of the money coming in and out of their business. It can be overwhelming to keep track of the various payments, deposits, and other financial transactions while also respecting all rules and regulations.
Fortunately, many tools are available to help make this task easier. From software programs to online or outsourced services, there are a variety of options to help streamline the process.
These tools can help you keep track of payments, deposits, and other financial transactions while also staying organized and ensuring that everything is accounted for.
Why Do Real Estate Agents and Brokers Need Accounting?
Real estate agents need accounting to ensure their business runs efficiently and profitably. Accounting for real estate agents helps them keep track of their income and expenses and develop new strategies for the future. It also allows them to examine their performance and make necessary improvements to grow their real estate business.
Accounting is an essential part of running a successful real estate or brokerage business. Whether you work on more undersized real estate contracts or large-scale corporate contracts, having the proper accounting department is vital.
Real estate/brokerage accounting is important for a variety of reasons, including:
- Helps to ensure accuracy in financial records
- Guarantees compliance with applicable laws and regulations
- Helps to identify and track potential risks
- Provides accurate and timely financial information for decision making
- Helps to identify and maximize opportunities for profit
- Helps to maintain financial stability and liquidity
Knowing the fundamental accounting basics will help real estate agents stay ahead of the game and their competitors. Accounting is a crucial skill for any self-employed professional, and being knowledgeable in this field provides significant advantages. Here are some accounting tips for all real estate agents and brokers that want to optimize their bookkeeping and practices.
Know the Rules & Regulations
Real estate management and brokerage are local and regional activities, meaning the rules and requirements vary depending on where you live and work. It is essential to understand the laws and regulations of the area to ensure that all real estate transactions are conducted in a legal and ethical manner.
Knowing the local accounting rules and regulations is a key part of being a successful real estate agent or broker, and it is important to know and stay up to date on the latest regulations in order to remain compliant and protect the interests of both buyers and sellers.
Being in compliance with how your county, city, or state regulates real estate income could impact how you choose to manage or outsource your bookkeeping needs, so it’s important to understand the standards and policies in place.
Separate Personal and Business Funds
It is true that commissions and other sources of income belong to you as a real estate agent, however, gathering it all into your general bank account can create a mess in your accounting system.
Keeping personal and business funds separate is a good accounting practice for real estate agents. It helps them avoid any conflict of interest and is also a way to protect their personal assets from any lawsuits or other liability that arise from their business activities.
Besides security and legal reasons, real estate agents and brokers should keep all their earnings separately in dedicated business accounts to aid an easy connection to their preferred accounting platform or software. That way, they will be able to have clean records ready to be processed by your bookkeeper or accountant.
Conduct Monthly Reviews
Monthly reviews are compulsory elements of accountability and transparency, which are two qualities that make any business successful. Even if you use an automated tool to keep your finances in place, it is recommended that you conduct a monthly review to monitor all financial activity of the business account.
It can be applied even if you have a financial advisor or accountant! Just schedule a monthly meeting to ensure your books are always in order so that you can track down any errors or discrepancies without checking a whole year’s worth of records.
Select Your Accounting Method
Due to the development and automation of software designed specifically for real estate agents, accounting has become much easier these days, so if you wish to do your own accounting, you can use these types of software. If you would rather leave your finance in the hands of experts, that is also a viable option. Regardless of the person or software keeping your books, you must first choose the accounting method that you’d like to use for business.
When you use the cash-basis accounting model, the bookkeeper or yourself are responsible for recording all expenses and revenues as soon as they have been deducted or received by your company. If there’s a cash exchange, you have to input that information.
Accrual accounting is a method of accounting in which income is recognized when it is earned and expenses are recorded when they are incurred. This method contrasts with cash accounting, where income is recognized when received and expenses are recorded when paid.
Accrual accounting records revenue only as it is earned, not just when the cash has been received, with the purpose of providing a more accurate representation of net earnings.
Modern realtors and brokers have to keep themselves educated even in terms of accounting in order to thrive in today’s competitive market. It is also recommended to get the help of professionals that will be knowledgeable and up to date with the latest rules, regulations and, why not, the latest accounting software.
Keeping your finances in order has never been easier, but if you still need a helping hand, you can outsource your team of specialists from Invedus.