Even though tax season is past for many – I know some of you have filed extensions and still need to wrangle your paperwork into submission – it’s never too early to start thinking about next year. The best way to prepare for that is to be proactive and keep on top of your record keeping throughout each month.
Yes, it’s tedious and time-consuming and not fun, but it’s extremely important for two big reasons. First, if you stay current with your bookkeeping, you’ll be in much better shape and save yourself far more time at the end of the year. You’ll suffer far less hair-pulling, stomach-churning frustration and stress.
Secondly, keeping good records gives you a clear picture of where your funds are coming from and going to, which makes you a much better business person. It’s virtually impossible to run a successful business without keeping track of incoming and outgoing funds. Accurate bookkeeping for real estate investors provides a blueprint of how well the business is doing. Conversely, if you’re not keeping good records, you have no idea whether you’re making money or losing money or how much either way.
Now you need a system for tracking. Start with keeping separate bank accounts for your personal and real estate activities. Doing so makes it far easier to manage monthly records. And should you ever get audited by the IRS, you’ll need complete records of your real estate activities; it’ll be a lot easier to show them when you’ve kept those accounts separate.
Next, make sure you reconcile bank statements each month to further minimize errors and stay on top of income and outgo.
Keep track of every receipt and expense, no matter how small. It all adds up at the end of the year. You can start by simply keeping a traditional file folder into which you deposit all your receipts at the end of the week. Then if you want to scan them into a digital file once a month, you can.
While you’re at it, you’ll want to accurately track the income and expenses in the correct categories. Set those up at the onset and you’ll have an accurate measurement of your real estate business’s profitability.
If necessary, get professional help. Of course you know that time is money. If it’s taking you a lot of time to manage your bookkeeping or it’s simply not your expertise, then it makes sense to hire someone to manage it. Paying for the services of a bookkeeper will free you up to focus on growing your real estate investment business.
Good bookkeeping allows you to stay on top of your cash flow. This is important for real estate investors. Deals can drop into your lap at any time. You need to be able to make quick decisions when an opportunity presents itself. If you don’t know your cash flow situation, how will you be able to take advantage of that opportunity?
When your bookkeeping is in order, you have an accurate idea of cash on hand, as well as where your business is going. When you have a good understanding of your cash flow, you can accurately manage your debt, purchases and anything else that requires funding. If you don’t stay up to date with your books, you won’t know where you stand.
How to know what’s working
Throughout the year, you’ll likely implement several different methods of lead generation. How can you know what’s working and where you should spend more and what’s not generating business and should be stopped if you’re not tracking? For example, when you send out a mailing, you need to know what the total cost is for each new lead. Continuing down that path, you then need to know how much it cost to move that lead into a closed deal. Good bookkeeping in your real estate investment business gives you the information about which specific tactics bring you the most and best deals. So instead of wasting money on marketing that doesn’t work, you can direct your investments to the strategies that generate income.
No matter if you’re helping distressed home sellers and closing five deals or fifty deals a year, maintaining sound bookkeeping for real estate investors and staying on top of what is going on with your income and expenses is essential for building a successful business.
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Have you signed up to attend the DMV’s premier wholesalers meetup yet? Meet other wholesalers and aspiring wholesalers and join the discussion of how to find and close more deals. See details at https://www.meetup.com/Express-Homebuyers-Wholesaling-Real-Estate-Meetup/