Wednesday, 24 May 2023
Property managers must be adept at bookkeeping because they need to determine the profitability of the asset. Financial management of a property entails tracking its outgoings, such as maintenance costs, repair expenses and insurance premiums, and incomings, which include the rental income.
Landlords with diverse portfolios hire property managers to send monthly invoices and receive rental payments on time. However, they need professional bookkeepers to ensure tax savings and an excellent return on investment from the asset.
Here are the bookkeeping best practices for property management in Melbourne that provide accurate and up-to-date financial information. Landlords can use this data to make informed investment-based decisions related to the property.
Landlords should not receive the rental payment in their personal savings account. They must open a separate account for rental income and outgoings because it makes it easier to calculate taxes and claim deductions. It becomes easier to track historic transactions and avoid mixing savings from other sources with property income.
Bookkeeping basics include creating a list of accounts to categorise all the transactions related to the property. These categories include revenue, liabilities, assets, expenses and business equity. It helps to organise financial information and understand the incomings and outgoings effectively.
Expert Bookkeepers Melbourne use two accounting methods for property management – cash basis and accrual. The cash accounting method records revenue and expenses when cash is received or paid by the landlord.
On the other hand, the accrual accounting method records revenue when it is generated and expenses when they are incurred rather than when they are paid. Single property owners can use the cash method, while landlords with a diverse portfolio must use the accrual method.
Property managers who take charge of managing finances get confused between accounting and bookkeeping. However, the distinction is quite clear because bookkeeping entails recording transactions, and accounting involves analysing the records.
There are two bookkeeping methods – single-entry and double-entry. The single-entry method records transactions only one time, whereas the double-entry method records them two times under debits and credits.
The landlord or property manager sends invoices to the tenant to request rent payment. The landlord again sends a receipt to the tenant on receiving the payment. The property manager must save and preserve both to keep track of the payments. They must be sent at the right time every month to avoid delay in receiving the payment.
Generating financial statements is a significant task performed by bookkeepers in Melbourne because it helps to determine the performance of the property. These include preparing the income statement, balance sheet and cash flow statement. The owner can use these reports to identify trends related to expenses and income.
Property managers must take unpredictable expenses into account while managing finances. These include repaid cost of fixtures on the property or refurbishments of the asset because of structural damage. They also need to consider the vacancy periods when there is no income but maintenance costs continue to be incurred.
Reconciling bank accounts involves reviewing the bank statements for the property account with the general ledger. The balance in both should match, and discrepancies showcase errors in calculations. If the balances do not match, the landlord owes money to someone or has outstanding receivables. Thus, it must be done every month to identify irregularities in the accounts and get them corrected.
Property taxes in Melbourne will rise for landlords with investment properties as the government plans to introduce a COVID debt levy in 2023 for the next few years. Thus, property owners need to calculate their taxes correctly and claim deductions to save their tax bills and avoid penalties from the ATO. Bookkeepers come in handy in this regard by offering tax planning services that help navigate the process swiftly.
Accounting software reduces the workload related to recording all the transactions of the property. It makes the job of the property manager much easier because they get real-time access to the latest financial data. The software helps automate the tasks of invoicing and billing, tracking expenses, bank reconciliation, tax compliance and generating financial reports.
In addition, the landlord can integrate the software with online payment gateways to receive rental income and get the receivables updated instantly in the books. It saves time and effort of the property manager and keeps the financial data centralised, up-to-date and secure.
Bookkeeping for property management is not a layman’s job. It requires specialised knowledge of finances, government regulations and taxes applicable to the asset. Professionals follow all the best practices mentioned above to ensure optimum profitability.
