Financing my first flip with a solid GC project managing start to finish. While I have the time to manage the backend accounting and organization of paperwork, what will a good bookkeeper take off my hands? I'd rather not file hours of paperwork if I don't have to.
At a minimum a book-keeping/accounting service should handle -
* System set-up (Quickbooks is a fine solution for most)
* Data entry/general journal log keeping
* Month-end reconciliation
* Quarterly report
* Quarterly tax filing (Payroll, etc.)
* Yearly tax returns
A full service accountant should also handle -
* Accounts payable
* Accounts receivable
* Weekly/biweekly reporting
* Project reporting
One of the biggest regrets I have is not having gotten a good book keeper earlier in my business. I'm of the opinion that doing the daily data entry is not something a business owner really needs to be doing; it's too easily outsourced as job.
Also, as the business grows doing the monthly reconciliations becomes an unbelievable burden, and doing year-end taxes is the stuff of nightmares.
@Aaron McGinnis Thanks for your reply. Considering this is my first flip, would you still recommend outsourcing this?
If you intend to do this more than once, I would at the very least advise getting a professional to help set up Quickbooks for you and show you how to run the program correctly. Start building a system right away so that you can hand it off to someone else a little ways down the road.
I would also advise having a book keeper do your month-end reconciliation and year-end taxes right off the bat, even if you do the day-to-day entry by yourself. It's very easy to get off track and not know it until you're hundreds of transactions down the road... then you have to pay out the nose for someone to go back and forensically audit your bad habits, fix it, and move forward from there.
I am in agreement with Aaron. As an accountant, I do not get why business owners/investors focus so much on the bookkeeping when their expertise is on investing.
My typical month-end things I do as an accountant:
Analyze the GL (reclass, if necessary)
Make sure Mortgage, Utilities, and Property Taxes are paid
Credit Card Reconciliations
Review Income & Expense statement
Review Cash balance (this is mostly every time checks are cut) to make sure there's enough for mortgage
Gathering all backup and documents for the tax accountant or auditor
This includes GL should be close to perfect.
Review of Income Statements and Balance Sheets
Fiscal Year-end bank rec which should match the balance sheet's numbers
Prepare any CAM reimbursements (commercial tenants properties)
As for flipping - same concept, just making sure that the closing entries are done correctly.
For one property, I don't think it is worth it. You should be able to do everything you need on your own and I feel it is a waste of money. All your tax accountant needs is the info. It is up to you on how you want to provide it to him/her.
I did a few flips before, but don't really have time for it now since I only do RE part time. I am primarily just dealing with rentals now.
Personally, I have 4 rental properties and I just use MS Excel to track expenses and income using a tab for each property. The expense headings are in line with the tax form line items and I have a spot for comments if necessary. I have tables summarizing things on other tabs and just create a new workbook for each year essentially just clearing out the old one and resaving it.
I spend minimal time on accounting. Some years, I will get busy and forget about it until the end of the year and need to go back and do everything at once. It isn't hard to due since I just need to look at my business account activity to reconcile it.
I have an accounting degree and could use quick books, but MS excel is easier for my needs and works for my lender. I don't need any specific monthly reports as all of my bills are on auto pay and I can see the rent checks coming in when they hit the account.
I feel like I could easily use my system for 10 properties or so but am not looking to expand quickly either.
Hey @Harry Williams ! I'm totally in agreement with @Simon W. Look again at that list of tasks he performs for his clients. Even if you are fully trained and qualified to do all of these yourself, there's never a good reason to do so! This notion of "saving money by doing it yourself" is nothing but fear- and scarcity-based thinking.
Either this is a business or it's a hobby: If it's a business, let the professionals do what they do so you can focus on finding and executing profitable real estate transactions.
Benefit from my pain: It took me nearly two decades to learn this particular lesson!
Couldn't agree more. Currently, I have been doing the record keeping myself. With one project, it's not too much. If I take on more projects I will have my CPA recommend a bookkeeper. Thanks! @Mitch Messer
Those are just some of the things I do. I haven't even listed the day-to-day tasks.
There is a difference between bookkeeping at this intervals:
- year end
Define your needs and the end goal is not data entry. It is getting those analytic reports at your fingertips and someone making you accountable so bookkeepers like us can achieve your goals.
As a new investor myself this thread is so helpful. How much do these services typically cost? I know RE is all about keeping costs as low as possible, so how much of a net positive is having a great accountant when you’re pinching pennies to begin with?
Anywhere from $75/ month to $10000000 Just kidding or Anywhere from $15 an hour to $.....
It all depends on a person, team's expertise and knowledge.
From our experience because of tardiness in financials they do not file tax returns in time, not sure where they are spending money, what is the ROI, what each lead, property is costing them. Lastly where they stand on each property. It is all in the head.
For eg. You invest 50K in your business and get a loan for 200K to invest in anything in your business and you spend it on marketing, research, purchasing property.....
If you purchased a property for 100K and took 75,000 (from 250K) at closing or fix it, put 20% down and balance from TD Bank as mortgage.
- What is your liability on that specific property?
- What is your liability on the business minus the property?
- What is your equity on that specific property?
- What is your equity on the business minus the property?
This is bookkeeping and going beyond. You already know how to wheel and deal and are learning to invest in real estate.
But no one - no one that I have seen so far is saying, you need to learn to first keep your financials for your business and each property. Please correct me if I am wrong.
How to get started even if you do not have one property?
Simple - start with your personal daily spending and you have your financials. PL and BS.
Sorry if this is toooo long.
@Tom Conant Great question!
Bookkeepers tend to charge for services in two different ways.
1) Hourly: usually at or around $20-50 an hour, but this number can vary wildly depending on the level of service you're getting. And I definitely mean level of service. Someone brand new and to bookkeeping may charge very little, and a well seasoned RE CPA may charge the usual CPA rate of $100-400 an hour.
2) Flat Rate: This charge should stay the same for the most part as time goes on with your bookkeeper. Sometimes it will also include the tools you and the bookkeeper need in order to work together, like Quickbooks. The best part about paying a flat rate is that there's no extra trust needed: the bookkeeper does the work for the price, and you get your books. With hourly pricing, there's always that nagging feeling of "what if my bookkeeper is just letting the clock run? How are they measuring their hours to begin with?"
The best way to get this number is to reach out to a bookkeeper and ask. But, you can always guesstimate by counting your own hours doing it, and then doing the math for hourly.
@Harry Williams if you have a good software system setup, all you are doing is logging expenses, paying bills and filing receipts. Filing is as simple as putting new ones in front of the folder. As part of managing the project, you need to track expenses. I am not sure outsourcing expense management is a good idea on your first flip.
I am guessing this task will take 15 minutes per day, but if you feel that is too much, most accountants offer bookkeeping services. Just contact your CPA if you need help with it.
This sounds like something your accountant would help you with