Excel, quick books or ? for REI financials?

[Guy Yoes]

My list of properties has more than doubled this year. I was tracking expenses with excel spreadsheets. I am hiring a CPA to do taxes this year. He recommends getting quickbooks. Is it worth the monthly fee, time setting it up and learning a new system? Is there something better I should consider?

[Michael Plaks]

@Guy Yoes

Bookkeeping has 3 purposes:

1. monitoring your business
2. taxes
3. presenting financial statements for lenders

There is no system that can perfectly accomplish all 3 of these goals, because each one of them requires different information. So you have to choose on which one to focus.

With Excel, you basically record your cash flow. It is not enough for tax preparation, and your CPA will need more information. If Excel gives you what you need as an investor, and your CPA accepts it for tax preparation - stay with it.

One of the main issues with using Excel for bookkeeping is that everything has to be entered manually. Yes, you can import bank statements into Excel, but there's still substantial manual labor involved in organizing these records.

A step up from that is an expense tracking app: a cloud-based system that links to your bank accounts. You can have your income and expenses pulled daily from your bank, and you can automate the organizing process to some degree. You will also have a backup of your photographed receipts and many other features. There're tons of expense tracking apps on the market, just google them.

The next step is an actual accounting system. In addition to simply tracking expenses, it allows tracking of tax bases, generating financial statements etc. Some systems calling themselves accounting systems, for example the popular free Stessa, are not full accounting systems. They do not support double-entry accounting: you do not have to deal with debits and credits, but you also do not have actual financial statements such as Balance Sheets.

QuickBooks is the #1 full accounting software choice for accountants, however we know how to use it. Our clients don't. Contrary to Intuit's claims, QuickBooks is not ready to be used by real estate investors without customizing its setup. While it can track tax bases and produce Balance Sheets, it requires special setup and knowing how to do it. This is not something you can learn from a 5-min YouTube video.

So chances are that, unless your CPA sets it up for you and trains you, you will be using QuickBooks as an overpriced expense tracking software instead of its true purpose as a complete accounting package.

This warrants a more substantial discussion with your CPA about how he expects you to use QuickBooks. Simply saying - go buy it and learn how to use it is no good. I can go buy all the fancy knives and cooking equipment, and I still won't be able to prepare a decent meal. For my level of cooking skills, one stainless pot and one knife from Walmart is plenty.