I’m a masochist.
Back in August our book keeper moved on to greener pastures and I figured it would be a great opportunity for me to take over his responsibilities: keeping records for 8 LLC’s and ~200 properties. I wanted to learn the ins and outs of accounting and fix some inefficiencies along the way. I told myself I’d do it through one tax season. Turns out…bookkeeping sucks.
Somewhere along the way I decided to overhaul the system and roll out paperless accounting.
Not just paperless accounting, I wanted a scalable solution that was fall of the log easy for our users and required little effort on the back end.
Today, tax season is winding down, and we’re rolling out the finishing touches. Gone are the file cabinets, endless scanning, and full time bookkeeper. Now, once you make a payment, you only have two steps:
- Write the property and account at the top of the receipt
- Take a picture with your phone
That’s about 5 second of work. Everything else automagically happens behind the scenes (and no, I’m not doing it).
If you’re anything like me (geeky), you’ll find this sort of thing fascinating, so I thought I would share with you how the system works and what tools we use.
N.B. I’m going to detail expense handling…income is similar but different.
Let’s start where the user left off. They’ve taken a picture of a receipt with their phone. Sort of, they had to do so with…
Cost – $3.99 for the Pro version for Android. Sorry folks…not available for iPhone (although I’m sure there’s a competitor).
Handy Scanner converts a photo into a pdf (portable document format, the standard for static documents). There are any number of application that do this same thing, but Handy Scanner was the one that checked all my boxes. It allows for multiple pages, cropping, and basic image post processing in case your hands aren’t the steadiest.
The best part of Handy Scanner is that once it creates the pdf, you can set it up to automatically move the files to…
Cost – Free.
Google Drive started as a web based competitor to the Microsoft Office suite. While it’s lacking in some of the higher end functionality (in their spreadsheets pivot tables are terrible and you can’t record a macro), it nails the basics. Creating documents, presentations, and pdf’s is a breeze.
Once people started creating all these documents, the Google boys had to find a way to store them. So they tossed together a web based file management system. It can store any file you can put on your computer…and it will even sync to a folder on your PC (like Dropbox).
It’s into this system that our pdf receipt is copied by Handy Scanner. Once there, it gets moved to the correct directory. If it’s a bill that needs paid it goes into the “Needs Paid” directory. Then whoever pays the bills can do so from anywhere in the world (perks of paperless accounting).
Once paid, the document is moved into the “Needs Reconciled” directory,
What is it being reconciled with? Well, your…
Cost – Free. Are there any banks that don’t offer this these days?
Every couple of days, we download our full transaction history and append it onto a spreadsheet on Google Drive. From there, someone has to match the receipts in “Needs Reconciled” to the corresponding transaction in the spreadsheet. Once a match is made, we mark that row of the spreadsheet as found and move our pdf into the “Reconciled” directory.
At this point, we also change the name of the file to an id we create based on our transaction (we use “account-date-transactionnum”). This makes it easier to dig up later.
A few thousand transactions a month and we have to match every one up? This is when things start to get time consuming. If only there was a way to get someone else to do it for us. Maybe a company? Something like…
Update – This was originally yourdailytask.com. A poor experience led me to switch to Integra and thus far I’ve nothing but positive things to say about them.
Cost – Around $7.85/hour. For our ~200 properties, I’m spending ~20-30 hours a month keeping records, so let’s say it takes our outsourcing folks 40 hours…that’s $314.
The paperless in paperless accounting means the files can be accessed from anywhere…and it makes it simple to outsource.
Integra is one of countless virtual assistants. Virtual assistants focus on helping you out with tasks you can’t or don’t want to do…as long as they can do it remotely (at a fraction of the cost you’d pay in America). I’m currently training them on our system…I’ll let you know if they work out.
One downside of outsourcing is that it’s more likely someone is going to mess up your paperless accounting system. So…to be safe, we use…
Cost – $4.00/user/month
Backupify does exactly what you expect. It makes a complete backup of all of your data. It works well with Google Apps for Business and if things do get FUBARed allows you to do a complete restore. Oh..and it also has some handy security features like tracking every action any user takes.
We’ve not had to use it to date, but $4 a month is a cheap insurance premium.
In and of itself, the file management/receipt tracking system we’ve discussed isn’t useful. The rubber hits the road in…
Cost – $125/month (for the 100-200 unit plan)
Buildium is a web based property management system and the backbone of our paperless accounting system. It tracks everything the aspiring real estate investor needs: properties, tenants, leases, accounting, etc. The user interface is intuitive and the accounting entry is top notch.
My favorite feature is that I can setup online access for our investors. Meaning they can see how every penny of their money is invested, whenever they want.
Remember how I said we gave a unique id to every reconciled receipt in Google Drive? Well, we add this id to the corresponding entry in Buildium. So, if we are poking around in Buildium and have a question about a transaction, all we have to do is copy and paste the id into the search field in Google Drive and voila…the receipt. It takes about a second…much better than searching through a binder of receipts.
Buildium does come up short in one area: reporting. It’s great for putting data in, but not so great for getting data out. To get around this, I had to bust out skills acquired in a former life: I wrote various Python scripts to beat a raw general ledger into a format I can use. However, that only is a factor when I’m trying to answer questions like: “How often do two year leases default” or “what is the per property percentage return on investment.” The standard reporting is sufficient 99% of the time.
Wrap It Up: The advantages of paperless accounting
If we tally up all of our costs, it comes $443/month ($5,316 annually). Or, as I like to think of it, about $2 per unit per month. Compare that to a full time book keeper at ~40k per year (this was our actual all in cost) and it’s a no brainer.
Now, I’m not so naive as to think that my book keeping duties will forever go away. However, needing to spend 20 hours a year instead of 20 hours a month doesn’t suck.
Oh…and I might choose to spend those 20 hours on beach in Hawaii, sipping a Margarita.