Nearly half of all landlords manage their properties. Perhaps the most frustrating thing to manage is rental property accounting.
It's difficult to keep track of all the expenses and income that come with owning a rental property in the Columbia, Maryland area.
But it's also crucial. If you don't know how much money is coming in and going out, you won't know if your investment is profitable.
If you are a new investor wanting to understand rental property accounting, this short and simple guide is for you.
Keep Accurate Financial Records
The first step to rental property accounting is to keep accurate records of your property finances. This means keeping track of all income and expenses related to your rental property.
This includes everything from mortgage payments to utility bills and maintenance costs. You may also want to track rent, tenant turnover expenses, and even property taxes.
Classify Expenses Accurately
To account for your expenses, it's important to classify them correctly. For example, if you have a Columbia, Maryland area cleaning service come in once a week, classify this expense as labor and not materials.
If you pay for a plumber, classify this expense as repairs instead of maintenance. The more accurately you categorize expenses, the easier it is to determine your business' profitability.
Get Comfortable With Financial Statements
Financial statements are the most important tool in running a successful business. They help you find out where your money is going and how much of it you have left over.
They also give you a snapshot of what's happening with your business at any point.
Get comfortable with balance, cash flow, and profit-and-loss statements. They will be your best friend as you manage your business.
Maintain a Separate Bank Account
Keeping all of your funds in one account can be a bad idea. It's easy to get used to having all of your money in one place, but it can also be dangerous.
If you have a problem with credit card debt or personal loans, this could cause some issues for your business. Your business should have a bank account, preferably at a different institution than where you keep your funds.
Hire a Professional Accountant
As you grow, the importance of hiring a Columbia, Maryland, area accountant will become more apparent. They will help you run your business more efficiently, saving money and precious time.
They can also advise you on how to best handle taxes and other financial matters. An accountant can help you avoid making mistakes and keep your business safe from any legal issues.
Rental Property Accounting: Have an Accurate Accounting System
Rental property accounting can be a major headache for a small business owner. However, you must have an accurate accounting system in place to make sure your finances are up-to-date. The more reliable your accounting system is, the better you can manage your rental property business.
PMI Mason Dixon can set up a rental accounting system to make your business easier to manage. Contact us today to get started!
