As a property entrepreneur, you need to maintain your rental business as dependable sources of income. However, you must also establish a sound accounting system to take good care of your investments. For better operations, you can integrate modern tools like accounting software for property management.
In the real estate business, using accounting software enables you to track profits from each of your leases. You can also maintain an accurate record of your expenses for tax deduction purposes.
Furthermore, you can easily comply with the requirement of the U.S. Internal Revenue Service (IRS) for maintaining a separate filing of property financial reports.
Benefits of an Accounting Software in Property Management
Integrating accounting software in property management can benefit your business in many ways. It automates the processing of your financial transactions, thus, improving your efficiency. Here are other benefits of the software:
- Lessens manual errors due to process automation
- Simple backup and recovery of data
- Quick data entry processes
- Generation of comprehensive financial reports
- Fast approval of cash disbursements and invoices
- Staff cost savings on manual accounting
- Centralized accounting data for faster access by multiple departments
- Secure financial data storage
- Scalability for future expansions
- User-friendly features
Steps in Establishing an Accounting System for Your Property Rental Business
Regardless of the size of your real estate business, you should maintain the right accounting system to manage it effectively. By using such tools, you can monitor the inflow and outflow of money. Here are the steps you should take to get your operation off the ground:
- Create an independent account for each property in your software – If you have several rental facilities, consider opening a separate account for each to facilitate financial monitoring. All expenses and revenues should be managed independently for each account.
- Decide on your accounting method – Determine whether you will be using the accrual or cash basis method in your system. Under the accrual approach, you record income or expenses as they happen regardless of whether the money is already released or received. While on a cash basis, you enter a transaction after the money changes hands.
- Enter every transaction into your software – Record all your financial activities to monitor how cash enters or leaves your business. You should generate an income statement regularly to track the financial performance of your leases.
- Print out financial statements – You should make a copy of your financial statements so you can use them to plan your long-term strategy. Some of the financial statements you can use are the income statement, balance sheet, and cash flow statement.
- Monitor deductible costs – You should keep track of your deductibles. Among the deductible expenses are prices of repairs, cleaning and maintenance supplies, legal, and management fees.
These processes often also include insurance, wages, tax preparation, and professional accounting, advertising, lease cancellation costs, and real estate taxes. You should also include the depreciation of your depreciable properties. Some depreciable assets are office furniture, computers, and company vehicles.
Good record-keeping practices will allow you to manage your business efficiently. You can facilitate the monitoring of your finances by using software specially designed for property management. These tools will allow you to track the performance of your rental properties better and plan for future expansions.