Guest Blogger : Seth
The Importance of Tracking Expenses for a Profitable Rental Property Business
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Tracking expenses can mean the difference between success and failure for a business. For a company that manages multiple properties, keeping track of finances, managing your profit and loss, and monitoring expenditure can be a full-time job — a job that can be made easier with the use of effective accounting tools.
Why should I track expenses?
A record of expenses needs to be kept by every business, including one that’s focused on investment property. Tracking costs allows you to keep track of spending, which is especially important in larger organizations where multiple employees incur costs. Keeping an eye on your outgoings helps you make better analyses to minimize mistakes made through human error. Collecting data around your earnings and outgoings allows you to oversee your P&L and use the data to identify areas of weakness and potential growth. In addition, the government requires you, by law, to keep paper copies of some expenses for tax purposes.
What records do I need to track?
Fortune Builders estimates there are 14 types of expenses that a property rental business needs to track: property taxes, maintenance, utilities, property management, homeowners insurance, appraisal fees, home inspection, broker fees and tenant screening, marketing, property improvements, accounting fees, vacancy costs, business permits, and closing costs. Even for one property, this is a large number of expenses to monitor — multiply that by 10 or 100, and you can see the importance of sophisticated expense tracking systems.
How can I track my expenses?
A property rental business should focus on organizing expenses by specific categories, ideally by each property and by type of expenditure (i.e., repairs, insurances, etc.). Accounts should be regularly updated with earnings and outgoings for the entire business. Expense tracking can be done traditionally, through paper filing, via spreadsheets such as Excel, or through robust accounting software systems.
It can be tempting to shun paper filing in place of modern accounting systems. However, paper filing does have some benefits. The IRS requires receipts for business expenses that are more than $75.00. Moreover, it is recommended that small businesses retain receipts for all purchases to track business expenses effectively.
Paper tracking uses a traditional hand filing system to file documents into category folders. Paper filing is tedious, takes up physical space, and doesn’t give you an effective overview of your accounts department without transferring at least some of the data onto a spreadsheet or accounting system
For small businesses, the use of a spreadsheet may be enough to keep track of business expenses, and it has the advantage of eliminating some wasteful paper usages. However, spreadsheets for large businesses, or companies with many users, can become unwieldy and are open to human error. For this reason, spreadsheets are suggested for SMEs only.
Online accounting systems
For businesses, both large and small, that want a robust accounting system, QuickBooks Online Advanced is highly endorsed. Quickbooks process invoices, bills, checks, and expenses faster by allowing the user to input all data directly into the system, and it is connected to your bank and Paypal accounts. This complete integration into the financial aspects of your business allows you to see where your money is going by giving you a simple overview and analysis of your data. Quickbooks can be used to oversee a large number of employees, making this an excellent option for large companies. This sophisticated accounting system means your business is fully prepared when tax time rolls around.
Whichever method you choose to track your expenses, with managing rental property, it is imperative that you ensure that detailed accounts are kept and reviewed regularly. Successful businesses keep an eye on cash flow and use the data that they obtain to tweak practices to ensure growth and profit for the future.