The Benefits Of Bookkeeping For Real Estate Investors

With investors preparing to turn the page on February, the window for tax season is getting smaller and smaller. Having said that, everyday that passes gives investors less time to prepare for one of the most important times of the year. But I can assure you; every second you spend procrastinating will only come back to hurt you and your business.

Entrepreneurs, and particularly real estate investors, need to remain proactive in their tax efforts over the course of the entire year. That means keeping records of every dollar that is spent, and having a good grasp on the allocation of funds, both coming and going. Above all, you must understand that taxes can either be your worst enemy or your best friend. It’s on you, however, to make sure it is the ladder of the two. But how can you be sure to be prepared come tax time? The answer is simple: proper bookkeeping for real estate investors will see to it that everything is in order and accounted for.

However, the benefits of bookkeeping for real estate investors don’t stop there. Proper management of capital can also help investors with the following:

1. Gauge Business Performance:

I could very easily argue that running a successful business is contingent on proper bookkeeping. That said, it is practically impossible to run a sustainable business without keeping track of incoming money and outgoing costs. There isn’t a better way that I am aware of to track the performance of your own business. Done correctly, proper bookkeeping can provide you with a blueprint to how well things are going.

The opposite is also true; without keeping good books it is almost impossible to know how well your business is performing. You may think things are running smoothly, but you really can’t be sure. Even if they are, I can assure you bookkeeping will make things a lot more efficient. So before you relegate bookkeeping to tax preparations, understand that it has the potential to make your business run more efficiently throughout the year, not just tax time.

Of course, bookkeeping for real estate investors will only benefit those who remain organized. Every time you make an expense, you need to have a system for tracking it. Numbers change every quarter, month and even every week. Good bookkeeping allows you to know exactly where your business stands.

2. Gauge Specific Performance:

Not unlike the previous point I made, bookkeeping is entirely capable of judging the performance of very specific activities as well. In other words, it is a great way of keeping track of individual jobs; not just the business as a whole. There is perhaps no better way to determine whether or not your return on investment (ROI) is on pace with what you initially predicted.

Over the course of a year, you will most likely try a dozen or so different ways to generate new business. How can you gauge the success of these if you aren’t tracking the numbers? If you conduct a mailing, you need to know the total cost to capture one new lead. Going a step further, you need to have an idea of the cost to turn that lead into a deal. Getting your phone to ring is nice, but you need to be able to convert leads into deals. Good bookkeeping may give you an idea of which specific markets have yielded the most deals. Instead of wasting money on marketing that doesn’t work, you can allocate your funds to the strategies that net income.

3. Tax Season:

Collecting all of the documents needed for tax time can be a real burden on your business. It can weigh on you for several weeks if you are completely unorganized. Instead of scrambling around getting all of the necessary documents, you would make your life much easier if you stay on top of things throughout the year; that’s where bookkeeping for real estate investors comes into play. Keep a separate spreadsheet and file for every property you own. Every time you make a payment, keep whatever documentation you have in that file. You won’t need all of these documents for your taxes, but the more you have the better.

4. Cash Flow:

Good bookkeeping allows you to stay on top of your cash flow. This is important with any business, but specifically for real estate investors. Deals may come your way at any given time. You need to be able to make quick decisions when opportunity presents itself. If you don’t know your cash flow situation, it is impossible to take action. Bookkeeping gives you an idea not only of your cash on hand, but also where your business is headed. With a good grasp on your current cash flow, you can better manage debt, purchases and manage anything else that requires additional funding. If you don’t stay on top of your books, you won’t know where you stand.

5. Credit Score:

Your credit score is one of the most important assets you have in real estate. High scores give you multiple financing options as well as the lowest possible interest rates. Conversely, a low score can be a difficult hurdle to overcome. All it takes is one late payment to pull your scores down. If you forget about a card payment, it will eventually lead to a collection that does even more damage. If you have ample cash flow, there is no excuse to miss a payment. You should be able to pay everything on time without any oversights. Bookkeeping, as it turns out, will help you keep on top of everything. Even if it is a simple as managing payments, real estate bookkeeping is invaluable.

If the position your business is currently in merits it, you should consider hiring an administrative assistant to help with your daily bookkeeping. Even if you only close a handful of deals a year, you still need to stay on top of where every dollar is being spent – and coming in for that matter. Good bookkeeping for real estate investors is so much more than a great way to keep tabs on funds, but rather an essential component to a successful business.