There are many moving parts in running a successful rental business. A great bookkeeping and accounting system is a crucial element in managing a property portfolio. Having a robust accounting system will help you plan for tax implications in advance. Not only will an accountant be of help at tax time, but they will also provide on-demand financial help, which will safeguard your business against debt or fraud.
Forecasting future expenses will help you plan better and save time. This can help one focus on managing property and expanding the business. Historical financial data will help you forecast various costs with greater accuracy, thereby ensuring that you are not financially derailed. For instance, this data can help determine what needs to be done when maintenance costs increase in winter months or when internal or external walls require repairs.
Ensure rentals are being received on a timely basis.
Rent receivable reports, prepared by accountants, show the amount of rent the landlord has earned but not yet received from the tenant. At the same time, the prepaid rent report shows the rent that has been received in advance. These reports help to identify delinquent tenants ahead of time. When the balance of the rent receivable ledger is nil, it means the landlord has received all the rent that was due to him from the tenant.
Take advantage of available tax benefits.
Even with the flurry of activities surrounding getting the property ready for rent and choosing the right tenant, the landlord must stay on top of taxes, such as capital gains tax, stamp duty, and corporation tax, among others.
Taxation planning should be done beforehand rather than afterward, as it will ensure a hassle-free cash flow. An accountant makes certain that the landlord enjoys tax-effective property ownership.
Also, in various scenarios, where the landlord incurs expenses wholly and exclusively for property rental business, claims part expenses, incurs maintenance and repairs costs, is required to calculate a profit or loss for more than one property, or has tax implications on account of a jointly owned property, the accountant can work out the documentation required and the tax liability in the different scenarios.
Ensure surplus money is adequately invested.
Owning a property is owning a long-term financial asset, the benefit of which can be enjoyed for years to come. A rental property typically provides the landlord with residual monthly cash flow, which, if invested wisely, yields not only a guaranteed passive income for many years but also an opportunity to build reserves. Hence, hiring a good accounting professional to help one develop financial discipline for such investments is advantageous. Some of how the landlords can invest the surplus funds are as follows:
a) Maintenance and Safety: With the change in every season, the landlord should look at which items need to be cleaned or replaced. Ensuring fire alarms and emergency lighting are in good working condition and investing in the best quality for these systems not only keeps the property safe but also ensures that the landlord doesn’t incur liabilities on account of faulty systems. Any white goods requiring repairs and replacement can be done through the residual cash. These small changes make the property attractive to the tenants.
b) Prepayments: Applying the surplus cash flow to paying down the principal balance helps reduce the loan term by a few years. This can eventually give the landlord the flexibility to invest in more buy-to-let property on the mortgage.
Ensure all expenses are correctly accounted.
Landlords need to ensure business and personal expenses are accounted for separately. It is best to have a separate credit card and bank account, which are used only for rental property expenses. In the case of multiple properties, particularly when one has more than 3-4 properties, it is best to have a separate bank account for each property you own.
For a given property, one can have rental receipts deposited into one account, along with any taxes and repairs for that property, being debited from a single bank account. The expenses that can be reported include but are not limited to advertising, auto and travel expenses, cleaning and maintenance, commissions, insurance, legal and other fees, management fees, mortgage interest, repairs, taxes, and utilities.
Typically, lenders are less tolerant of buy-to-let mortgage arrears and treat them to a certain extent on par with commercial loans. Hence, missing out on Loan EMIs can have some serious consequences.
Management Reporting.
A monthly property management report outlines the property’s performance and identifies areas that require attention. By and large, the following reports should be covered in the monthly management report:
Balance Sheet: helps you track your current assets and liabilities, showing you how much money you have to work with.
The monthly Income and Expense statement tells you how much money you made during the reporting period and how much you spent,
General ledger transactions are the backbone of all financial reports. General ledger scrutiny provides a comprehensive overview of your rental business.
The accounts payable report tells you how much money you owe against the property. Tenant receivables: tells you how much you are due to receive from the tenants and
The prepaid report tells you how much of your expenses you have prepaid
The monthly bank statements with reconciliation ensure that your bank accounts match your ledger accounts penny by penny.
Conclusion
In conclusion, having an experienced accountant will have a positive impact on your retail business. It is their experience and knowledge of the latest U.S. accounting standards that will make your business more compliant and put you ahead of your competitors.
If hiring an accountant directly is not possible, you can avail yourself of their services through a professional service provider, just like others do. Among the many service providers offering their accounting services to businesses based in the USA is E2E Accounting, which become quite a name. The reason for its popularity is its talented team of accountants, who are well-versed in the latest accounting standards and utilize the latest processes to streamline the accounting process. Please find out more by writing to us on our contact form and get an immediate response from our executive.
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