5 Tips TO Help Stay On Top Of Your BooksBy JD Esajian on December 15, 2017
It is important to constantly remember that you are running a business. Generating leads and closing deals doesn’t mean much if you don’t feel the impact on your bottom line. Everything you do must be done with the thought of your businesses economy in mind. Closing a rehab deal sounds great on the surface but you need to account for every dollar spent. Sloppy investors often leave thousands of dollars on the table or spend money unnecessarily. You don’t necessarily need to be a CPA, but your books should influence your actions. What you will find is that the better in tune you are with your finances the better decisions you will make and the more robust your bottom line will be. Here are five tips to help any real estate investor stay on top of their books.
- Dedicated accounts. Regardless if you have a single rental property or a large portfolio you need to separate your business and personal accounts. Not only is this helpful come tax time it is the best way to get a true feel of your business. Without separate accounts it is easy to co-mingle funds and get confused on your expenses. What may look like a successful marketing campaign or a rehab property may actually be disappointing when you peel the onion and break down the numbers. With dedicated business and personal accounts there should be no mistaking where your money goes and what it is used for. It will make your life much easier if there are questions regarding a specific transaction. It only takes a few minutes to set up a new account with your local bank. A few minutes today will make your life easier for years to come.
- Track all spending. Do you know where every dollar spent in your business goes? As simple, and obvious, as it sounds if you don’t know where your money is going you can’t possibly make adjustments. One of the benefits of having a dedicated account is that it will help streamline your spending. As much as you may not like accounting or numbers you must bite the bullet and get organized. If this means spending a day just going through your expenses and inputting them in a spreadsheet you need to suck it up and do it. A few hours today will help your business immensely in the long run. If you haven’t looked at your spending in a while it can be eye opening to see exactly where your money goes. Most people are too stubborn to explore other spending options and keep things status quo for years. Little things like homeowner’s insurance, lawn care, snow removal and attorney fees can all be reduced with just a little research. Individually, they may not have an impact but in totality they could help save hundreds of dollars every month. Without tracking your spending you may be throwing money away.
- Understand revenue. Spending is only half of the revenue equation. In addition to spending it is important to track money coming in as well. All money brought into your business should not be looked at equally. Receiving rent is great but when is the last time you researched rents in the market? Increasing your rent by just 10% will have a big impact over the course of the lease. The same is the case with every rehab project you are a part of. The bottom line is always important, but you need to know how you got there. Examine your sales price in relation to other properties on the market. Look at some improvements you made that helped drive the price. By understanding the work put in and the improvements made and how they impact the bottom line you will get sharper in every aspect of the project.
- Keep separate properties. There are plenty of times when doing a little more work up front will save you hours of headache down the road. Setting up separate accounts for every property you own or project you are a part of may seem a bit excessive, but it is the best way to stay organized. The reality is that it doesn’t take more than just a few minutes to establish individual accounts. You can manage these online and by doing so you will constantly stay on top of your books. Even if you keep your business accounts separate you may have multiple properties so sift through which is time consuming and frustrating.
- Find help if you need it. As a real estate investor, you will be forced to wear many hats. Like anyone else, you will find your strengths and weaknesses over time. If you have made an honest effort to stay on top of your books but are still having a tough time it is ok to find help. In fact, paying an accountant or a dedicated bookkeeper can be the best money you will ever spend. Many investors view accounting as an unnecessary expense, but it truly is the backbone of your business. Without knowing where your money goes or how it comes in you can’t possibly make adjustments. A good bookkeeper or accountant can help squeeze every dollar from your business and help maximize the bottom line.
Staying on top of your books is always easier if you allocate some time every week. Knowing your books inside and out helps in every area of your business.