Sinking a lot of time into property management accounting probably isn’t the reason why you participated in property, either as a specific or limited company. Regardless, you’re accountable for some basic accounting.
But if you’re new to property management accounting, you might not know where to start, so we wrote this beginner’s guide to help. Let’s get started!
What does property management accounting involve, and why is it important?
Property management accounting is the process of handling and recording financial transactions related to a property. This contains rent payments, expenses related to maintenance and repairs, as well as management costs.
Accounting is vital for success in the world of real estate; it allows a landlord or property management company to monitor their income and expenses, ensure compliance with tax regulations, and maintain their financial health.
It’s also crucial in reducing the amount of money you owe to HMRC, as it’s only through property accounting that you can positively claim for tax deductions.
Accomplishment started with property management accounting
Accountancy isn’t something that you can simply walk into without knowing the basics. But if you have a knack for numbers and the time and patience to study, you can get started pretty quickly by yourself.
The following are the necessary steps to get started:
Make a budget
Creating a budget should be high on your list of priorities. This includes estimating your income and expenses for the year and taking into account factors such as rent, maintenance costs, property taxes, insurance, and utilities.
Doing this will give you a strong idea of your financial circumstances and help you plan for the future.
Open a separate bank account
If you haven’t already, it’s a good idea to divide up your personal and corporate bank accounts. That way, it will be easier to track your income and expenses, and it will be easier to claim tax deductions for every single business expense.
Pick an accounting method
Sole traders and partnerships prepare their corporate accounts and calculate taxable profits by using one of two methods: the cash basis or the accruals basis. The accruals basis, which is commonly used in property management accounting, recognises revenue and expenses at the time a corporation earns or incurs them, regardless of when compensation is received or made. This is in contrast to the cash basis. Revenue and costs are only recorded in this system when cash is collected or paid. While the cash basis is more straightforward, most industries and accountants agree that the accrual basis is better because it presents a more accurate picture of a business’s finances over a long period of time.
Record transactions
Now it’s time to record all financial dealings related to your property management corporation.
There are two types of transactions: accounts payable and accounts receivable, which basically mean expenses and income in accounting terms;
To efficiently manage these transactions in property management, it’s crucial to record them promptly. Delaying this can lead to time-consuming catch-up work, especially if receipts and invoices are misplaced.
Consider leveraging property management accounting software. This technology can streamline your bookkeeping by automatically transferring and sorting data from scanned documents. If software isn’t an option, regular spreadsheets can suffice for manually recording your transactions.
By staying on top of accounts payable and receivable, you ensure a smoother financial operation, minimizing the risk of errors and ensuring clarity in your financial standing.
To help you do that, make sure you record all your transactions as they arise. Otherwise, you’ll have to catch up on your bookkeeping. This can be time-consuming, especially if you’ve misplaced some receipts and invoices. You might also want to consider a property management accounting software system. Consequently, can ease the procedure by automatically transferring and sorting information from scanned documents. Otherwise, you can use regular worksheets to manually record your transactions.
Bank Reconciliation
Bank reconciliation means checking your recorded transactions against your bank statements to ensure they match. Doing this helps classify errors and guarantees that your financial records are precise. This process is essential in property management accounting because it helps identify discrepancies that could lead to financial misstatements. Ensuring accuracy in your records not only maintains trust with stakeholders but also supports compliance with financial regulations.
You can perform bank reconciliation manually, which can be time-consuming but offers a detailed understanding of your financial activities. Alternatively, using property management accounting software can streamline the process, allowing you to rapidly check the figures and focus on resolving any identified issues. This blend of manual scrutiny and technological efficiency ensures your financial data remains trustworthy and up-to-date.
Prepare financial statements
Preparing financial statements is an important component of property management accounting.They should accurately reflect your financial health. Thus, allow you to make informed decisions. For the same reason, if you own a property management company, investors will take a keen interest in your financial accounts.
Financial statements are classified into three types:
Understanding financial statements is essential in property management accounting as they provide a snapshot of your financial health, guiding you in making informed decisions. For property management companies, accurate statements are particularly important because they attract investor interest by showcasing the financial viability of your operations.
Balance sheet. This process records your assets and liabilities. As a result, analyze the amount of money that would be left over if your corporation went bust tomorrow, known as equity. This information is crucial as it reflects your company’s financial stability and helps in assessing long-term sustainability.
Income statement. Also known as the profit and loss report, this shows your net income over a certain period of time. It provides insights into profitability, helping you determine whether your business operations are generating more revenue than expenses.
Cashflow statement. This breaks down your cash flow to provide valuable info about your liquidity and ability to meet financial responsibilities. By detailing your cash inflows and outflows, it ensures you can cover day-to-day expenses and invest in future growth opportunities.
These financial statements collectively offer a comprehensive view of your business’s financial status, enabling you to track performance, manage resources effectively, and plan strategically for growth.
Efficient Property Management Accounting Solutions by Low Cost Accounts
Low Cost Accounts offers comprehensive support for property management accounting, ensuring smooth financial operations for your real estate business. Hence, by outsourcing your accounting needs to Low Cost Accounts, you can streamline your financial processes. As a result, focus more on growing your property portfolio. The company’s experienced professionals will handle all aspects of property accounting. From rent collection and expense tracking to financial reporting and tax preparation. With Low Cost Accounts, you can expect timely and accurate financial information. Ultimately, enabling you to make informed decisions and maximize your property investments.
If you need personalized assistance, our dedicated staff are available to meet you at any of these locations, ensuring you receive the support you need, when you need it. Whether you’re just starting in property management or looking to enhance your existing processes, you can reach out to our specialists.
By choosing Low Cost Accounts, you’re not only opting for top-notch financial services but also gaining access to a team committed to your success. Discover the benefits of professional property management accounting today and maximize your investments with confidence.