There is a demand for 4.6 million new apartments by 2030. The construction of these apartments will create over 100,000 new jobs. The commercial real estate industry is thriving despite the challenges posed by the pandemic.
If you are in the commercial real estate business or are considering a commercial real estate endeavor, you will need to ensure your bookkeeping is up to scratch. Read on to learn about the top bookkeeping mistakes to avoid in commercial real estate and some crucial tips to consider when handling the books.
Avoid These Bookkeeping Mistakes For Commercial Real Estate
Bookkeeping mistakes can lead to confusion and frustration. These hiccups can land you with extra tasks to correct these errors. Avoiding these bookkeeping mistakes should ensure that you don’t need to make significant corrections. Restatements or anything of the sort will lead to wasted money and other resources that will eat away at your bottom line.
Overlapping Expense Categories
If you want your bookkeeping to be clean and efficient, with information readily available and well-presented, you must ensure that you do not overlap expense categories. Bookkeepers sometimes duplicate categories or combine them in commercial real estate. This can make the information more difficult to sort through.
Overlapping expense categories can also cause a miscategorization or overcategorization of expenses. Individual expenses are taxed differently, so personal expenses must be in their own category. Failing to categorize your expenses correctly could lose you money. Plus, you will have a less transparent understanding of your finances.
To categorize your expenses correctly, look at Freshbooks’ list of 14 small business expenses categories to consider.
Not Backing Up Your Records
One of the mistakes to avoid in commercial real estate is not backing up your business records. Paper records and hardware-based filing systems are becoming a thing of the past. Since the pandemic began, businesses have been pushed to adopt cloud-based record-keeping software that facilitates remote record-keeping and collaboration.
Cloud-based technologies allow all records to be up-to-date and visible from anywhere. This means that communication and collaboration are achieved much more quickly.
If you’re considering using a cloud-based platform for your records, you will need to make some cybersecurity considerations. Since cloud-based information is stored online, it can be exposed to cyber threats and even a data breach. Sensitive data stored on cloud-based platforms can be encrypted and protected easily.
Not Establishing Employee Classification
Commercial real estate businesses will inevitably need to hire both employees and independent contractors. One of the common bookkeeping mistakes in the commercial real estate industry is failing to establish employee or worker classification.
You must establish a classification system for employees and independent contractors. In doing so, you can avoid paying higher taxes or filing tax returns incorrectly. If you develop proper employee classification, you will have more explicit tax calculations and tax structures.
Not Separating Personal and Business Bank Accounts
As your commercial real estate business grows, the need to distinguish between personal and business bank accounts becomes increasingly apparent. Accumulating savings and making personal transactions should be limited to your bank account. You should also limit business cash flow activities to your business bank account.
Keeping these two accounts distinct and separate is one of the steeper challenges you will face as a commercial real estate company. However, inconsistencies with account transactions can affect your tax calculations and financial analysis.
Using the same bank account for personal and business transactions is one of the mistakes to avoid in commercial real estate.
Taking On Too Much Responsibility
If you are managing a business, you will not have the time to educate yourself on the nuances of bookkeeping practices. Delegating tasks ensures your business will be successful. Plus, you will have more time to focus on more critical tasks.
So, consider hiring a professional that can help you avoid mistakes that could lead to complications down the line. Many service providers offer a ton of services. Some tasks they can help you with include accounting, bookkeeping, pay roll, tax filings, advisory services, and more.
Of course, you will also need to analyze whether your budget allows for hiring a professional bookkeeper before taking steps to hire one. You could always opt instead for accounting software, should a bookkeeper be out of your budget.
Utilizing Accounting Software to Improve Your Bookkeeping
Lease accounting software is tailored to meet the needs of commercial real estate businesses. You can organize your financials using lease accounting software for any sector, including:
- Industrial real estate
- Student accommodation
- Retail real estate
- Office real estate
- Coworking real estate
You can even combine your accounting software with property management software, marketing, and portfolio planning under a single connected solution. Lease accounting software is tailored to meet the needs of corporate occupiers and their accounting teams, no matter the size of their portfolio. You can automate tedious accounting calculations and remove the possibility of errors.
Using systems like excel cannot offer you the same accuracy and automation provided by accounting software. You can view financial information alongside lease administration workflows and generate reports across asset types or portfolios within seconds.
Suppose you’re looking to automate bookkeeping processes and host all of your financial information on cloud-based software accessible to all authorized parties from anywhere. In that case, accounting software provides an excellent solution.
Tips for Bookkeeping in the Commercial Real Estate Industry
Now we have covered some of the top mistakes to avoid in commercial real estate, let’s take a look at the best tips for bookkeeping in the commercial real estate industry:
- Make use of accounting software – there are accounting software tools specifically tailored for the commercial real estate industry to help you structure your bookkeeping for your business.
- Keep up-to-date on your state’s accounting regulations.
- Keep your documents organized well – you will eventually need to reconcile receipts and contracts with your books, so keeping them organized well will help you or your hired bookkeeper perform bookkeeping duties later on.
- Don’t be afraid to ask for help – enlisting the services of a professional bookkeeper or utilizing accounting software can make your job much more manageable, decreasing your workload and freeing up your time to focus on more critical tasks to push your business towards success and improve your portfolio.
Avoid these Mistakes in Commercial Real Estate – Summary
Bookkeeping mistakes are easy to avoid and can save you a lot of trouble later down the line. Poor bookkeeping practices can lead to wasted time and money. It is in your best interest to either avoid these mistakes in your bookkeeping practices or hire a professional with extensive knowledge of best bookkeeping practices. Or, if a professional is out of your budget, there are plenty of accounting software tools to give you a helping hand.