Bookkeeping for a newbie - what do I do??
Seattle, WA · Member since 2017 · 72 posts · 23 votes
Hi everyone,
When first starting out, what did you do to keep track of your expenses, revenues, receipts, quotes, numbers, numbers, money, money, etc...? What software or programs helped you the best?
Also, what were some of the mistakes you made that you wish someone had warned you about?
I am looking to purchase a quad in Fresno but a big part of my hesitation is keeping track of the finances. Even with a degree in finance, I am very nervous of what I should do. I know I can't know everything starting out, but I want to make sure I set up a good bookkeeping foundation versus cursing myself down the road.
As always, I appreciate everything you guys have to say...it has all been so informative and helpful!
Rosy
I use this google sheet to track my properties and think that it's sufficient. It's modeled after the Sch E and the only think it doesn't include is depreciation so it's east to give to whoever does your taxes. You can change around the categories however you want and keep a contemporaneous log of your miles as well.
Not sure if I'm allowed to link so mods delete it I'm not supposed to.
In my situation it only makes sense to have a bookkeeper set you up on a software like QuickBooks. Once things are initially setup, the software typically learns from your past entries and auto fills for you on a go forward basis. I am 1) not an expert and 2) don't have the time to become one.
I think a lot of people skimp here and miss out on opportunities to claim legitimate expenses. This is advantageous for tax purposes. You should also consult with a Tax Accountant occasionally to see what opportunities your are missing out on to legally record expenses.
Remember - A dollar spent pre-tax is effectively the same as 1.3 dollars (more or less) after taxes.
@Rosy Bruno I use QuickBooks Online. It's pretty simple to use, integrates with all my bank accounts, and I can share a log-in with my CPA. Like @Jay Dean mentioned, the software starts to learn and understand transactions, making it easier as you go along.
I pay a monthly service fee ~$20 for it. (Tax deductible :)
@Jay Dean I love that you touch on the taxes because that is exactly what I want to be able to take advantage of. But I agree with your point on getting with someone to set me up. Thanks for the help!
@James Letchford thank you for the post! I have used quickbooks before and wasn't a huge fan but that could have been due to my lack of knowledge of the software. I'll give it another shot, especially if it seems to be working for you and others :) How many properties do you manage with quickbooks, if you don't mind me asking? Do you think you will "outgrow" it at some point?
Rosy.
Is there a reason that you want to do it yourself? I understand that you may just be getting started with your business but you can hire someone online on UpWork to handle all this for you.
If you want a free tool. One that I use is called GnuCash.
@Rosy Bruno I only manage one property in QuickBooks right now, with one in the pipeline. It may outgrow me at some point, but until I'm generating a lot more cash flow and have the need for a more sophisticated system, it's working for me.
@James Letchford awesome, good to know! That's pretty much the scale I am at right now so good to know it will help.
@Antoine Martel I would like to do it myself so that I can understand how my books work. At some point I would imagine I would hire someone but I'm the type of person that likes to know the ins and outs of everything, especially if it will pertain to my business. So by doing this, I will be able to double check and understand the work others will do for me.
But partnering with someone to check my work while I'm in the beginning stages wouldn't be a bad idea so I'll look into hiring someone to do that instead! :D And ill check out GnuCash; never heard of it though. Are there certain things you really like about the software vs others (assuming you tried others)?
Thanks for the suggestion!
GnuCash is great when starting out because it is free and super simple.
@Rosy Bruno Don't forget to use classes (I think that is was they call it) to separate your different properties. Using this you can see how each property is performing. As far as growing out of QuickBooks I don't think you have anything to worry about.
One quad, I would not bother with a system. Just use a separate account and a spreadsheet. All money in and out of the same account do not commingle funds. You will have a record of all the money that comes in and expenses going out. Most tax software will do the depreciation calculation. The rest is simple.
I tried Xero (similar to QuickBooks) and I just couldn't get the hang of it. I set up a spreadsheet that tracks everything monthly. I do all my business and personal bookkeeping/personal finance stuff on the 3rd Monday of every month.
Before I used a spreadsheet I used good ol' pen and paper (I know *cringe*) but there's just something about actually writing down the actual numbers that I like.
I'd be happy to email you my spreadsheet if you'd like.
@Brandon Mendez Brandon thank you so much for your input. I think we are on the same page of wanting to avoid losing money in the long run :) and I like your suggestions of starting with someone then taking it on. I feel my comfort level will be much higher if I go that route.
@Jay Dean Thanks for the tip!
@Lesley Resnick Thank you for your comment! I've been told that it helps an accountant if your keep track of everything, but no one has ever explained what that actually means which led me to this post :) So my question to you would be when you say "record all money...", do you mean like write down Cabinets x 4 = $1200 or are you doing actual double-entry accounting and tracking your general ledgers?
@Meghan Chomut I love excel!!! And if you wouldn't mind sharing your template I think that would help immensely!!! As I was telling Lesley, I don't actually know what it means to keep "good records" so seeing it should clarify some things. Thank you for the offer!!!!
I've used Quickbooks for my rentals since 2002, when I took over bookkeeping from my wife who used Quicken. Nothing wrong with Quicken, but I was in IT, System Analyst and programmer with companies large and small, and more familiar with double entry bookkeeping. With Quicken, you don't need that.
I am semi retired now, my last job was with a non-profit set up with QB, and we hired a retired bookkeeper to take over, and he has a degree in accounting. Even so, to quickly to all the feature of QB, there are plenty of 2 or 3 day training courses to get you started, which this retired bookkeeper went to. This would save you plenty of time trying to read manuals, trying to set it up, doing it incorrectly etc.
This retired bookkeeper I was training spent his whole life doing double entry bookkeeping via journal entries which QB can also do. If you never set up an accounting system, the first thing you need to do is set up a chart of account. I used to do it for clients, and while in QB, you can do it without using numbers for account codes, doing it alphabetically, most CPA's still used a numerical system, such as account 1000 for cash account 3000 for AR. Then you have to decide if your system uses a 3 digit number, 4 digit number etc. Or you can copy a chart of accounts from someone.
Then when you have that set up, you'll set up your custom screens. I use a custom invoice to for monthly rents, a better way than the simpler way of just crediting rents to a sales account, and debiting cash through a journal entry or deposit screen. I set up automatic transactions that QB books rents as of the 1st of each month, and when checks are received, apply cash to the invoice through the cash application screen. By mid month, you can do a printout of your AR and see who didn't pay. For a 4-plex, you probably don't need all that, but when you scale up, this will be a time saver.
Learn the "class" feature in Quickbooks, and learn this first. This is because when you do the custom invoice templates, you should already have the sales account number ready, and the class ready. If you don't, like I did originally, you'll have to come back to modify the invoice template to add it in. In my set up for class, I set up a class for "state", and a sub class under property, so each property has a code. This way, if I need data for properties in the state of MA for instance, I can get it quickly. If I need a P&L by property, I can do it quickly as well.
But the feature in QB I like the most is you can use standard reports or make custom reports and export directly into a Excel spreadsheet. I used this feature extensively at the last company I was at, as they need monthly reports in Excel format. So I learned to export the spreadsheet, and through "macros", I was able to in one workbook, download QB reports to one worksheet , and from the downloaded sheet, extract the data I need to a second spreadsheet, the custom one, which they need for reporting purposes. There's a report that used to take a day or two to put together, that took no more than a few minutes to do via this feature.
There are many other features such as payroll, 1099 reporting etc., which you'll initially don't need initially for a 4-plex, but when you scale up, would need.
Keep it simple, it is an unnecessary expense and time you do not need to spend. For one quad, double entry accounting is unnecessary, unless you like doing that sort of thing. You need to report income for taxes and the rest is for your personal consumption. It is easy to overcomplicate things. Do you really need to know your profitability every month to the penny? As long as you keep a record of how much you take in and how much goes out you are in good shape. At then end of the year add all deposits and add up all the expenses. keep the receipts in a folder and an XLS to back it up. Your tax program will ask how much did you take in, what maintenance expenses, etc.
Not sure I follow the cabinets comment? Reno and rent gets complicated for depreciation. Is it a repair or improvement? There are treated differently and some of the laws around it get complicated. A repair can be taken of your taxes in the year it happens and improvements must be deprecated.
@Rosy Bruno send me your email :)
I use this google sheet to track my properties and think that it's sufficient. It's modeled after the Sch E and the only think it doesn't include is depreciation so it's east to give to whoever does your taxes. You can change around the categories however you want and keep a contemporaneous log of your miles as well.
Not sure if I'm allowed to link so mods delete it I'm not supposed to.
@Frank Chin Holy moly Frank!! Your post was exactly what I was hoping for! So much helpful info. I completely forgot about the online training videos which I will most definitely watch! And thank you for the tips on the classes. It is definitely something to considered. I don't plan on doing out of state - yet, but I can already see myself organizing my properties by zip code or school district to see which are yielding better profits (unless you can see why this would screw me up later). And I am use to double entry accounting but I'm not terribly comfortable with it so Ill have to look into the custom screens and all that fancy jazz :D And thank you for keeping my scalability in mind because I do intend to build a nice size portfolio :)
@Lesley Resnick Thank you for your follow up. Per your advice, I will try my best to keep things as simple as possible (I'm a horrible offender of overcomplicating things); so this was a very appropriate suggestion. And the cabinet scenario was just asking 'What would you write down after a purchase in order to keep track of it?" But from what I'm gathering, you seem to just keep a list of the yearly income/expenses such as paint - $, tile - $, light fixtures - $, rent - $, laundry facility - $, etc. and use this list to help you when doing your tax reporting rather than going through a bunch of receipts (which sounds very simple, easy, and more to your point :) ). And as far as reno vs improvement, I guess ill just wait to cross that bridge when I get to it and focus on the beginning details :) thanks again! I feel like this has helped keep me focused on my goal of getting started vs worrying about the little details that may or may not come to fruition!
@Rosy Bruno using anything beyond Excel is overkill if you have less than ten properties. I would use the template that @Account Closed provided, because it gives you exactly what you need without extra complexity. It is similar to what I use. The important thing is tracking the expense date, amount and category. The category should match Schedule E to keep it simple for taxes. Depreciation gets more complicated, but for now just track the total amount on your spreadsheet. Assuming you hire an accountant, they will translate the total expense to an annual depreciated amount. What you depreciate versus take as a repair expense is partly subjective and rules are always changing. That is where an accountant experienced in rental properties can help.
After meticulously tracking every little thing all year, reporting is kind of deflating. That's it ? My Schedule E / 8825 only cares about like 4 numbers?
Keep it simple. I use software so old it quit updating 8 years ago but works well enough to self-file 3 dozen rentals and 2 businesses with turbotax.
Learn the difference between maintenance, repairs and capital improvements and you'll be fine!
@Joe Splitrock and @Steve Vaughan I am loving what your putting down. Ill be sure to look over @Account Closed's spreadsheet since it makes perfect sense to keep track of whatever came from the horse's mouth! Thanks guys!!
Great post!
I'd agree with most on here. Keep it simple and use Excel when first starting out. There's no need to spend additional money on software. I was also in your exact position (buying a rental and worrying about tracking the finances with a finance degree :)). I think you're safe with a simple spreadsheet for now.
I do use Quickbooks, however, for a flipping business I own 50/50 with my partner. The reason for this is so we have everything clearly documented in the software and it's a standard way of being able to access it. Plus, Quickbooks will allow us to scale a bit better without bogging down our Dropbox with unnecessary financial information. The plan is to outsource this work eventually once we scale a bit more and we're just checking on the business from a pure financial reporting perspective and managing projects. However, I'm sure we could still get away with Excel if we wanted to.
I'd agree with most on here. Keep it simple and use Excel when first starting out. There's no need to spend additional money on software. I was also in your exact position (buying a rental and worrying about tracking the finances with a finance degree :)). I think you're safe with a simple spreadsheet for now.
I do use Quickbooks, however, for a flipping business I own 50/50 with my partner. The reason for this is so we have everything clearly documented in the software and it's a standard way of being able to access it. Plus, Quickbooks will allow us to scale a bit better without bogging down our Dropbox with unnecessary financial information. The plan is to outsource this work eventually once we scale a bit more and we're just checking on the business from a pure financial reporting perspective and managing projects. However, I'm sure we could still get away with Excel if we wanted to.
I agree with James, but overtime it's good to have a system that made for book keeping. Excel is great especially at tracking deal by deal items, but with quickbooks you can reconcile your bank, you can keep track of all the non cash expense (like depreciation and amortization), this will come in great handy when you start to have multiple deals on going.
Overall I think it's something you can graduate too but I would recommend it or have an accountant do it for you. It just keeps things nice and tidy.