Are you starting a real estate business? Or maybe you’re an established firm looking for better ways to manage your numbers. Whatever the case, our easy guide can get you started on building or improving your accounting software or system, so you can keep track of real estate transactions with ease.
Who needs a real estate accounting system?
Let’s start from the beginning.
Broadly, a real estate accounting system is relevant for:
- Real estate brokers and agencies providing sales or letting services
- Management companies for residential or commercial properties
- Construction or property development firms
- Investment trusts that hold properties in their investment portfolio
What does a real estate accounting system do?
An accounting system keeps track of your real estate activities and financial transactions. The information captured within the system can help you run your business and work out, amongst other things:
- How well your business is doing and whether it’s growing
- The amount of money you’ve made
- How much tax and other charges you should pay
- Whether you’ve got enough cash to pay staff and bills
- Which business areas are performing well and which can be improved
So how do you build a sound accounting system for your business from the ground up?
The Chart of Accounts for real estate brokers is a good place to start.
Set up your Chart of Accounts
A Chart of Accounts is essentially a list of general ledger accounts where you record financial transactions. You can look at it as an organisational tool designed to help you break down transactions into:
It should reflect how your business makes and spends money.
The Chart of Accounts for real estate brokers or letting agents would look different to say, the Chart of Accounts for real estate investment company or management company, even if they’re all real estate businesses.
A real estate management company for example, would need accounts to record rent receivable and rental income. But these may not be relevant for a property developer focused solely on buying and selling properties.
It’s a good idea to sequence or number your accounts in a way that makes it easier to add more accounts later on. This might apply, for example, if your business involves buying properties and you want to keep track of them individually.
Many real estate accounting software products make it easy to set up a Chart of Accounts for real estate brokers by including a standard template. But you’ll still need to tailor it to your business.
Leverage real estate accounting software
There are many ways accounting software for real estate company can simplify financial and money management tasks. Even simple software will let you download bank feeds so you don’t have to enter data manually.
Transaction records are stored electronically and can be retrieved at the click of a button for further analysis and reporting. Since it’s easy to take the pulse of your firm’s financial health, you can fix potential problems early on. You can get on top of things like cost blow-outs, cashflow issues and shrinking profit margins.
What’s more, the latest real estate accounting software also has GST, payroll tax and income or corporation tax features. You can use these features to take the hassle out of tax compliance.
That said, what is the best accounting software for real estate company, agents, brokers and other property businesses?
Cloud-based accounting software allows you and your staff to work from anywhere as long as you’ve got a mobile device or laptop and an internet connection.
We like Xero at POP Business because it’s compatible with a host of third-party apps that allow you to integrate your accounting and operational processes. From rental income/expense trackers to cashflow monitoring tools for property development projects, there are plenty of optional features making it possible to run your business straight from Xero.
Understand key accounting issues
Along with having the right technology, you’ve also got to know the complexities involved in accounting for real estate transactions. Some of the challenges are outlined below:
IFRS 15 prescribes the steps to recognising revenue from customer contracts. It is one of the key accounting standards for real estate developers to get on top However, it’s highly technical and difficult to apply without the help of an accountant.
Valuing an older building is no easy feat, especially if there hasn’t been recent sales of similar properties. Remember, taxes and other charges are often based on property value, so inaccurate valuation could get you into legal strife.
Tax treatment of property sales
Depending on the nature of your business, the sales proceeds from property development projects could be taxed in different ways. This could be as disposal of trading stock, profit make scheme or a capital gain.
Payroll can be an onerous process when accounting for real estate agents because agency staff are often paid a combination of fixed salary and sales commission. This means the size of paychecks could look quite different each month.
Unless you’re using accounting software that automatically works out commissions when sales are complete, payroll calculations can be painfully slow.
Statutory trust accounts
Money collected and held by agents on behalf of someone else, in respect of real estate transactions, are deposited into trust accounts.
There are extensive laws that prescribe how trust money should be documented and managed. You’re also required to have trust accounts audited each year.
Accurate bookkeeping and an understanding of relevant laws are needed to ensure legal requirements are met.
Ask an accountant
Whether it’s to draw up your chart of accounts or set up your accounting software, it’s important to get professional help.
An accountant for real estate businesses can review your systems and procedures to confirm you’re following appropriate accounting and tax rules for real estate transactions.
Although tax return preparation, BAS lodgements and tax planning remain bread and butter, accounting professionals have the business acumen and data analysis skills to provide high-impact business advice too.
If you’re starting out, you could get advice around buying into an existing agency, or how to structure a new business in a tax-efficient way while minimising risks to your personal assets. You could also get help with preparing and pitching loan applications to boost your chances of approval.
Once your business is off the ground, an accountant can go through your numbers with you so you know how well you’re performing against competitors.
Getting help may be more affordable than you think. Believe it or not, you can get on-demand support with POP’s membership subscription from $99/month. You can even save a further 10% by paying upfront. POP can set up Xero accounting software for retail company and provide you with business advisory and accounting services.
For quality advice and great customer service, contact POP today!