Client Care Specialist
- Nov 15, 2010
It's that time again.
Save Your Receipts! Bookkeeping 101
Working with a bookkeeper can be scary when you have never done it before. It is a leap of faith to put your finances into the hands of someone else. We all try to do it ourselves. After all, these are our properties, shouldn't we be taking care of the banking? It's just like all the other financial transactions in our lives - deposit salary, pay bills, make charges and payments to our credit cards, and put something into savings at the end of the month... right? Wrong. Once you step into the world of real estate investing you are a business owner and that title comes with all the responsibilities from finding customers (tenants), collecting payment for services (rent), paying vendors (repairs and maintenance, utilities, property tax, insurance), and working everyday to make sure your customers are happy and your property is maintained. Never mind that you want to buy more properties and add to your workload (ergo: grow your business).
Working with a bookkeeper will give you the freedom to work on growing your business, without that paperwork monkey on your back.
I recommend that you ask other people in your real estate investment network who they use and find a bookkeeper based on referral. Who do they use and are they easy to work with? Do you get reports from them on a timely basis? Are they able to get your books ready for your accountant at tax time? Speaking of accountants, these are the people who should be doing your tax return, not your bookkeeper. They may be good at organizing your paperwork and sending you reports, but that does not qualify them to do your taxes. Tax laws change all the time; you want a professional accountant that knows the tax laws and will prepare your return correctly.
Once you find a bookkeeper make sure that they are comfortable with transactions related to real estate investing. You want to know that they understand how to record the purchase of a property as well as the sale of a property. They must also have knowledge of how to record mortgages - interest and principal must be tracked separately, and then reconciled at least yearly.
I recommend that my clients organize their paperwork chronologically (monthly), as this is how data is entered and it makes your part of the paperwork system simple. A bookkeeper will enter data for each month completely before continuing to the next month. Each bank, credit card, line of credit, and any other financial accounts will be reconciled monthly with the statements received by the bank or other financial institution. This is done for each property.
There will always be questions that you need to answer as your bookkeeper is not a mind reader and some of the statements you give them will not have enough details. For example, most bank statements will show a record of a cheque being withdrawn from the bank, but no details of what is was for or who it was written to. If your bank statement comes with copies of the cheques, consider yourself lucky. The rest of you need to make sure that each time you write a cheque you record it so that when your bookkeeper asks you two months later what it was for, you have an answer. An easy way to do this is to make a photocopy or photo of the cheques you write and put them in the monthly folder for that property.
If you use a credit card for your rental property business, keep the receipts you get and put them in the monthly folder as well. When your credit card statement comes in the mail, review it, then put that in the monthly folder along with your receipts. Once you get the system in place to put all your paperwork into monthly folders, getting organized will be easy. Your bookkeeper can handle the rest.
Kim Franz is a REIN member, real estate investor, and of course, a real estate bookkeeper. For more information go to: www.kimfranzbookkeeping.com or contact her at email@example.com.
Likes: 1 person