“I’m tired of this!” I’ve heard that from several clients who are having to go back and locate or create records for their businesses. Their time of “running and gunning” and “easy money” is over, and they are now having to figure out what they borrowed, how they spent it, and what, if anything, they made.
I am aware of a major fact about myself. My recordkeeping skills are great when it comes to tracking documents, but when it comes to reconciling bank accounts, that is in the domain of my assistant who can tell you to the penny what is going on with each of the accounts I have. Having that kind of meticulous recordkeeping is vitally important to any enterprise or business if you want to sustain its profitability.
For every real estate investor who is good at tracking their income and expenses, I can find 99 who are not so good. Here are some suggestions I hope will help if you are one those 99.
- Before you purchase an asset or make your next investment on a flip house, etc., set up a separate email account for that particular project and register that email for all the vendors you are using for the work so all receipts will go to that account. This means multiple emails for multiple projects. The records can be accessed remotely by a virtual assistant and put into QuickBooks or something similar.
- Avoid buying materials or paying for things with personal funds. Take the extra step of depositing personal funds into the operating bank account for that project or entity and then spend from that business account. When you put the money into the business account, you need to determine whether the money will be a capital contribution or a loan to the enterprise. Make sure you are consistent and document it in writing. If it is a loan, it must have a promissory note and a scheduled repayment plan with interest. Since most of you will not do that, it would be better to classify it as a capital contribution.
- Reconcile bank statements and credit card statements at least on a monthly basis. If you are new to real estate investing and are not sure you have enough money for a project, tracking your money every week would be best. Back in my younger days, I found myself in the position of not really knowing how much money I had spent on a rehab and thinking I had more money in reserve than I really did. I had to scramble to find funds to complete the project. Whether it is a few hundred dollars or several thousand dollars, that is no fun.
- Keep a close eye on your accounts receivable. I am currently helping a friend and business colleague work through a process where a manager owes him a lot of money. The manager collected the money on behalf of the business but failed to forward the money to my client for the last seven months. There should be frequent check-ins when you have a business relationship with someone so you can monitor what is happening. I have two other clients who are currently dealing with large property management companies that have, by all appearances, stolen tens of thousands of dollars from them. In both instances, my clients didn’t recognize the problem until it had been going on for two months or more because the culpable parties were really good at obfuscating and delaying getting information to them. Monitor your accounts!