
Every successful business has a unique quality that makes it successful. Yet, at the core of all successful businesses are a few common factors, things that ensure that the company makes the best of all growth opportunities that come its way. Believe it or not, good accounting is one of those strong core pillars. It is especially true when it comes to a business such as real estate, where it is not just about merely adding rents received or subtracting payments made for purchased plots of land. The value of real estate assets appreciates with time and can be converted into other forms of wealth, which have to be duly accounted for in your books of accounts. Thus, accounting for a real estate business is a highly specialized and often tricky responsibility.
Why Does the Real Estate Business Need Reliable Accounting?
The real estate business regularly sees large amounts of money flowing in and out of the company. Keeping track of all this money and making sense of it for calculating profit, making investment decisions, or taxation purposes is not everybody’s cup of tea. Let’s see why accounting is essential in the real estate business.
Managing Cash Flow
The real estate business involves the regular exchange of large amounts of money for various reasons, including purchasing a house, paying for repairs or renovations, and paying rent and maintenance costs. Right from the real estate developer to the occupant of the property, money exchanges hands at various levels and delays in payment could cost heavily. From the business point of view, having cash ready in hand is of vital importance. For all these requirements, it is essential to have a smooth cash flow. Though this stands true for all businesses, it is crucial in a seasonal business such as real estate, where there can be a sudden burst of demand for new properties or an equally sudden downturn with property prices falling perilously. At such times, as a business owner, you need to have enough money in hand to pay day-to-day bills or repay loan instalments.
A proper accounting system can ensure adequate cash flow management for expected or unforeseen circumstances. A robust accounting process can ensure you have ready cash and repay loans, taxes, and bills on time. Moreover, the real estate business incurs massive overhead costs. By accurately keeping track of all expenses and income, a competent accountant can identify areas for cutting costs and saving some much-needed money.
Creating a Centralized Data Bank
A real estate business does not deal in just one property but several types of properties – from houses to shops to plots of land – located in different localities. It has to ensure the financial data for each of these properties is correctly entered and that financial obligations related to them are addressed. They include due dates of rent and utility bills and the down payments for newly-acquired properties. For this to happen smoothly and without confusion or duplication, creating one centralized financial database for the business is necessary.
A specialized accountant can create a detailed database and use technology to automate tasks, such as paying loan instalments or maintenance bills, to ensure you never default on any important payment. By regularly monitoring this information, the accountant can also easily spot any discrepancies or gaps in the financial data and suggest corrective measures before it is too late.
Capturing Investment Opportunities
As mentioned earlier, real estate is a business where the asset value appreciates with time. Thus, real estate businesses always look for a good deal on an attractive property. If required, they also perform repairs and renovations, which can enhance the property value and increase profits. However, striking the right deal at the right time is only possible if you know where your business finances stand.
By keeping a keen eye on the company’s inflows and outflows, the accountant can set aside a feasible amount of money for exciting investment and growth opportunities.
Setting Realistic Budgets
Major real estate transactions often run into five-figure amounts and even higher. Even minor tasks, such as the general upkeep of the property, can be expensive depending on the age and condition of the property. It is wise to plan the next steps of the business cautiously. An accountant can identify the cyclical pattern of the real estate market in a particular locality and draw up a fair forecast of the business’s future. Based on these observations and projections, they can set realistic budgets. They can also help with potential financial risks and suggest ways to avoid or reduce them by properly assessing property values.
Handling Taxation and Compliance
The real estate business involves several legal procedures and tax laws, which vary from city to city and province to province. Non-compliance with these laws and non-payment of any liable taxes or license fees could spell disaster for the business. Not only will it create a gaping hole in your finances, but it will also tarnish the goodwill and brand name of the business.
A reliable real estate accounting expert has in-depth knowledge of such rules and laws. They also know the many deductions and benefits that can be availed for properties in different areas. Certain renovation costs and repairs can also be eligible for tax deductions, saving the business a significant amount of money. The accountant can correctly guide you regarding such compliance and taxation requirements, saving you time, effort, and money. Regular updating and auditing of the books of accounts can also help highlight any discrepancies well in time.
While accounting plays a significant role in any business, the sheer volume and magnitude of money involved in the real estate business makes it all the more important. Choosing a knowledgeable, reliable and honest accountant for your real estate business can make a difference to your business finances and prospects.
Contact Ford Keast LLP in London for Your Accounting Needs
A professional accountant specializing in real estate business can help you manage your cash flow, debt, and invoices. At Ford Keast LLP, our trained and experienced accountants can provide services to take care of all your accounting needs. To learn more about how Ford Keast LLP can provide you with the best accounting expertise, contact us online or at 519-679-9330.