Why would you want to take the time and effort to learn accounting and bookkeeping best practices? It can mean the difference between the life or death of your business.
As a real estate investor, your accounting practices provide you with a valuable snapshot of the health of your business, expenses, and possible avenues of profitability.
With sloppy or inaccurate accounting and bookkeeping practices, you will miss critically important information and have no sense of your overall financial health. That ignorance may turn out to be catastrophic. Read on to learn more about the benefits and importance of accounting and bookkeeping best practices for you.
We also featured this topic in one of our Royal Investing Group Mentoring sessions that you can view a replay of.
What Are Accounting and Bookkeeping Best Practices?
It depends on where you are in your real estate journey. A sole proprietor or married couple investing together may be perfectly suited to self-managing their books. In that case, you can keep detailed records with Quickbooks desktop.
The software gives you local control. That means you don't need a CPA or an accountant. One factor to keep in mind is that doing your books is time-consuming.
Ultimately, maintaining your books is a best practice because it keeps you intimately familiar with the details of business:
- How much you spend every month
- Types of issues and where money is going to
- It gives a true ROI
There are additional benefits to keeping good financial records, especially if you are looking for a business partner.
Why Bookkeeping Best Practices Are Important for Partnerships
Sloppy books kill business partnerships. For instance, you can't have garbage books and claims transparency. Making sound financial decisions based on accurate information undergirds importance in bookkeeping.
It takes effort, but maintaining accurate financial records is worth it because it helps bring peace of mind to your investments. Sloppy books might cover up embezzlement. Detailed and accurate bookkeeping is a good return on your investment because it provides peace of mind. And you can't put a price on that.
You can't make well-informed decisions when your books aren't straight. Excellent books help you make informed, unemotional decisions. You have to make sure you keep track of your records no matter what.
Here are some benefits of following accounting and bookkeeping best practices:
- Awareness of what is happening and driving financial profitability
- One way to make sure partners are being transparent with each other
- Stay out of the IRS eye
- It tells you when something creates wealth for you
- Tax strategy
When Is the Right Time to Outsource Bookkeeping?
Finding good deals and building wealth are your most dollar-productive activities. The right time to outsource is to define standards and what it means to have good bookkeeping. Hire someone as a bookkeeper to increase your ROI. Your time spent on bookkeeping produces less value to you than finding good real estate deals.
When you decide on hiring a professional, they should be able to give you a tax strategy. Whether you hire a CPA, CFO, or tax attorney, they will show you how bookkeeping is essential for peace of mind.
You will also learn how your business is performing and how much it makes. Getting a solid understanding of your financial situation is the first step you have to take before leveraging tax strategies. All in all, your relationship should produce detailed, robust tax strategies from good, accurate bookkeeping.
What Do I Need to Do for My Accounting and Bookkeeping?
All business owners must regularly review their monthly operational expenses. Only by understanding your financials will you be able to achieve your financial freedom goals.
Another thing you need to do is find someone whose advice you trust and who you can listen to. It might be a person who has experience with the same real estate investment or a similar business. Part of doing the research is determining the scope and need of your relationship.
What Does a Good Bookkeeper Do?
You should find someone who is competent. That means your professional would have:
- Appropriate education
- Similar business experience
- Thread of proven success
- Timely advice and availability
- Years of experience
A dedicated partner will listen to your specific situation and help you think through your scope and needs. Also, they are more likely to provide upfront value to you before you make a financial commitment.
The ability to communicate is essential. Your partner needs to be able to tell you what is happening with your business at your level of understanding.
They need to be familiar enough with you to be able to speak to you on your level, just like Goldilocks–not too high and not too low. That helps them identify pain points and how to mitigate them. One of the critical things you can do to help yourself out is to make sure your expectations are clear.
Your professional needs to be an expert in real estate. That means they focus on real estate and have excellent knowledge about real estate. Don't waste time here with someone who doesn't provide value, as developing relationships are expensive in both time and cost.
Regardless of an individual's situation and the appropriate approach they choose, maintaining and regularly reviewing your books is crucial.
For example, the scope of your investments may dictate the bookkeeping process or processes you follow. A sole proprietor or married couple investing together may be perfectly suited to self-managing their books. Alternatively, investors who enjoin with partners or have many properties will prefer a solution accessible from the cloud by their team of professionals.
Ensuring that you have a solid understanding of accounting and bookkeeping best practices for real estate investors is one of the first steps to sustained wealth development.
Do you want to learn more about how to secure your financial freedom? Register for FREE Royal Investing Group Mentoring on Wednesdays at 12:30 pm EST to learn more while networking in a casual, fun, and friendly environment.