Bookkeeping may not be your idea of a pleasurable activity, but we hope to help make it a little less dreary by sharing some quick and easy ways to make it more efficient (and make your business more profitable.)
[Disclaimer: We are not accountants, lawyers, or financial advisors, so please consult your own team of professionals about the topics covered in this article.]
Bookkeeping ranks right up there with root canals and sitting in traffic as most people’s idea of a fun time. It feels like going to math camp during summer vacation as a teenager.
If you count yourself in that category, while it may never be pleasurable, we hope that making it more efficient and profitable will help you see it in a better light. You might even learn to love numbers! At least a little.
Aside from the fact that the IRS requires it, there are at least three very good reasons for maintaining good financial records:
- Evidence or support in case of an audit
- Maximize tax deductions
- Make faster, better business decisions
The first is obviously an insurance policy you hope you’ll never have to use. The other two not only provide substantial benefits, but can also be used to shape your “why” – why did you start investing in the first place, what is the long-term goal you are striving toward?
With that in mind, let’s dive right into making your bookkeeping as efficient and profitable as possible without piling a lot of extra work on your plate. (And maybe even taking a little off it in the long run.)
To be clear, these are all things that you – not your accountant – should do to make your bookkeeping better.
Tip #1 – Automate
Automate as much as possible, especially when it comes to expense tracking.
One way to do this is to open separate bank accounts for each property you own. While this may seem like more work, it will save you time in the long run.
You probably already have each property set up as its own company with a separate EIN so keeping separate bank accounts helps with things like tracking which company an expense ties back to or which company (i.e. property) a rent payment should be attributed to.
Speaking of expenses, whenever possible pay for all expenses by credit card. This will allow you to seamlessly and automatically import all of the transactions into bookkeeping software like Quickbooks, where it’s easy to assign them to different properties. Here is our affiliate link for Quickbooks (we do receive a small commission at no additional cost to you.).
Another key component of automation is to set up as much as possible for automatic processing. That includes both automatic debit of things like mortgage and utility payments as well as automated deposit of incoming rent and other recurring revenues.
Tip #2 – Align with Your Accountant
While it’s important that you be philosophically aligned with your accountant’s risk tolerance, it’s equally important that you coordinate and agree with how expenses should be organized and categorized.
Give your accountant access to view and edit your books directly. That way, he or she can check to ensure all the categories make sense and that receipts are classified correctly.
They can also fix errors on the spot, ask and answer questions, and more. All from right within your bookkeeping software!
Tip #3 – Set Aside Time to Do Your Books at Least Monthly
Leaving your finances only until tax time may be a costly mistake.
It’s important to schedule time and block it out on your calendar to ensure it gets done. This also helps make sure that the pile of invoices and receipts doesn’t build up and become overwhelming.
Another really strong case for doing your books at least monthly is that it helps you quickly identify and put a stop to unauthorized or runaway expenses.
Say, for example, one of your vendors is charging you for a service you never requested. The sooner you notice that, the sooner it can be addressed.
At the very least, you can stop future charges, but you may also be able to get a full or partial refund. Catching it early could save you money and also help preserve the vendor relationship.
It’s important to also meet with your accountant at least quarterly. Think of your accountant as a financial advisor for your business who can help guide some of your financial decisions if necessary.
Tip #4 – Upload Receipts on the Fly
Any time you get a business-related receipt, use a smartphone app to scan (i.e. photograph) and upload into your bookkeeping software right on the spot.
This will not only help ensure that none get overlooked, but doing it while the transaction is still fresh in your mind enables you to add more relevant details that could be potentially helpful at a later date.
Most popular bookkeeping software supports this functionality, so it takes only a few seconds.
Tip #5 – Categorize Your Data
Even within just a single property, you may have many different sources of income. Rent, pet rent, utility billback, parking fees, laundry revenue, and more. A similar thing may be true on the expense side as well.
By splitting things out and tracking it separately on your books, you can more easily get a detailed financial picture of your business.
For example, if you never separate out utility bill backs, you can never tell if you’re collecting enough to fully cover the utilities. If you never track pet rent separately, you can never trend how you’re doing and make measurable improvements. These are just a few of the many examples of using data to help improve the performance of your business.
Over time, the data accumulated will help you make ever-better business decisions. By seeing trends in both revenues and expenses at a highly granular level, you’ll be able to make data-driven decisions that you couldn’t otherwise.
Digging Even Deeper
With these five tips in hand, you’ll be well on your way to having a better handle on your business finances. Then you may want to dig deeper and find even more simple-but-advanced tricks. For that, we recommend checking out 7 Ways to Get More Cashflow Out of Your Rental Business… Without Buying More Properties.
Feeling overwhelmed with bookkeeping? Don’t know what to do with the pile of receipts? Want to get better optics into your rental business? If so, CLICK HERE to be connected to our recommended bookkeepers. They can help you get your books in order and reduce stress!
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