Investors, do you use a bookkeeper?

Question

Answer

@Bastian Kneuse Absolutely correct! and other financial services, reports, analysis and execution. Bookkeeping is really the foundation; we could literally use the same analogy as a building. Without solid bookkeeping (foundation) you can't build your financial framework, analysis and ultimately plans for growth (structure). I'll provide a brief outline of a the financial side of the house from a ~$100K-$100MM per year operation. Beyond that you start getting into REITs which adhere to strict SEC regulations and have a completely different and more complex structures. Keep in mind this is a rough estimate and I've seen all sorts of combinations and creative structures in-between. Important to note as @Mark H. Porter pointed out and is VERY correct, you should always separate your financial operations and your TPMs for a variety of reasons. To start, a good Bookkeeper will ask for back up, clarify expenditures and make sure bills (property taxes) are being paid, rents are being collected and the bank account(s) reconcile. As @Ron Flatt mentioned, many bookkeepers will also notify owners or managers of cash outlays, unreconciled items and period end closings with clean financials; they should last you through $100K-5MM in annual revenue and some can have utility through $5-10MM, especially if they can process payroll (always outsource processing). Beyond that they start to become a Staff Accountant and eventually you need to split these into different rolls; somewhere around $7MM-15MM. You'll want an Accounts Payable (AP)/Staff Accountant and Property Accountant/Controller, many firms will change the title and roles. The accounts payable/staff accountant will oversee expenditures, payroll admin and sometimes rent collection and bank admin. The property accountant will reconcile bank accounts, rent reconciliations, create (maybe post) journal entries, preform CAM recs (commercial assets) and do the period end closing with financials to shareholders (lenders, owners, partners, etc). As revenue and activity grow you will need more property accountants yet your AP/staff accountant role should be at capacity until about $75MM in revenue. At $50MM+ in revenue you would need at least 2 property accountants and a controller to oversee operations, interpret financials, present to ownership/partners. Your bank might require an annual audit, review or comp which is another expenditure. Many firms would probably have a larger headcount, including a CFO, because you also need to have solid internal controls. At $100MM+ there should be AP/staff, property accountant, senior property accountant, controller and CFO. This is really a rough outline and I've seen it done with many variations of this example and beyond. We kind of tailor fit our solutions to the client. For example, a large multi-family client will be heavy property accounting and reporting, while a developer is heavy AP and forecasting; it really depends. Many times as owners accumulate wealth they lean more on the financial operations and the trust that should be built there. More and more of this will be automated yet the oversight, creativity and strategy won't be. I could go on forever and there are books that do a better job; hope this helps. DM me if you want to chat more.

Answer

@drew hollandThanks, I will put on my list. I am happy with my bookkeeper, but I never know when she may decide she is done, of course she could out last me.

Answer

I started with a bookkeeper, and separate property management, when I went over 20 doors. I still work full-time in a regular job so I knew I wasn’t going to provide the service necessary for happy tenants. I went with a separate bookkeeper from the PM as there are just too many cases of embezzlement going on. so my PM does all the cash and checks collections, the bookkeeper invoices individual tenants through Quickbooks and those are paid electronically. The bookkepper pulls data from my bank and credit card accounts, receipts get submitted using ReceiptBank, and everything gets reconciled monthly.

Answer

@Bastian Kneuse Hello Bastian, if you are self managing properties there are many tools out there that have made tracking income and expenses much easier such as Cozy, which is also used for rent collection. Taking an hour to update this every couple months will keep your accounting organized & easier when tax time comes. You can meet with a CPA before taxes are due and have the documents showing income & expenses prepared as well as statements that you receive for each property showing the mortgage & interest paid for the year. You should also provide property tax statements & insurance policies for the year for each property. Many banks also provide detailed expense summaries for card purchases. Tracking and updating your expenses for each property will also help you to understand how each property is performing from a cash flow perspective. It also is great to go back and see which CAPEX items were recently done on your expense sheets & and have an idea of others that could be upcoming. Keeping similar systems in place for each property will help streamline your business. For example, I have learned it is easier if I include property taxes as part of my escrow payment, but do not include insurance as I get a discount for prepaying in full for 12 months. I also try to setup as many bills as I can on autopay, schedule property tax payments through ACH, & review online banking transactions every few days.If you have the details well documented it will make the CPA's job easier & your business more efficient.

Answer

@Ron Flatt @Drew Holland @Satyam Mistry @Mark H. Porter Thank you all for your great responses. Besides bookkeeping, what other services do you utilize the bookkeeper for? @Drew Holland You mentioned cash flow projections, forecasting or capital expenditures budgeting. Are these services that investors take advantage of?

Answer

Great question! It really depends on size (revenue), strategy and complexity. There's not a general rule and as a professional accountant specializing in real estate investment companies I would always recommend hiring a professional bookkeeper or accountant (if you're not already an expert). I wouldn't renovate an asset without a professional contractor or run electrical lines without an electrician; the list goes on and is the same for financial data and reporting (especially as you grow). With lending requirements tightening up, creditors will be that much more diligent about reviewing financials. Our company Blue Top Financial (bluetopfinancial.com) specializes in accounting services for real estate investment companies and I'd be happy to help you find a bookkeeper with us, or another company. Our services range from basic bookkeeping to outsourced CFO services; we charge hourly or on a project basis. Most bookkeepers charge on an hourly basis and are very reasonable. Please message me for more information or to chat about your goals. @Ron Flatt Sounds like you have a great and trustworthy bookkeeper! Please let me know if I can help her out with your cash flow projections, forecasting or capital expenditures budgeting in the future. Happy Investing!bluetopfinancial.com

Answer

I do my own books and then send them to my bookkeeper, who organizes and keeps it ready for accountant. This takes care of two items, 1st) she makes sure I have everything accounted for. example cash outlays, which house, was it a rental or a flip, etc. 2nd) She will give me totals quarterly on what I have spent where. Example: I got a little carried away with some upgrades, while I was working and not needing the cash to support myself. Made several properties not cash flow, for this year. Depending on who you use, I am using a retired ministers wife and she is awesome, I would think you would need at least 10 rentals, but some may have a better cash flow or less. It will depend on what you want them to do. My bookkeeper is awesome and truly is looking out for me. She ask questions, wants the receipts, wants to know which projects, catches mistakes in deposits, etc.