When we first started our real estate business, we were faced, like all small businesses with finding a way to track the money. We did a bit of research and found that by far the easiest program to use was QuickBooks.
QuickBooks is from the makers of the little Quicken program that often came preloaded on a computer a few years ago. They make several versions of the program to better fit your companies personal needs. We settled on QuickBooks Pro.
1. The first reason we like the program is that it allows us to run reports so we know the expense of a particular real estate investment transaction. As long as the bills and income are entered once a week, we have 100% up to the minute snap shot of how much money we have into a deal.
This is handy in several ways. We can see if we are staying on budget. And when we sell a renovated house and the buyers lender wants to know how much money we have spent on a renovation, we run a report and send it to them.
2. The second reason we like the program is that for a little bit more we can purchase the payroll addition. Then we use this to write payroll checks. It tracks payroll expenses and generates reports on how much to pay the various government entities, when to pay them and the special reports that need to go with them. So for about $200 a year plus the time entering the transactions we can do payroll. Much cheaper than paying your CPA firm or hiring a payroll service, which would have been close to $1000 a year of our company.
We could also use it to generate year-end 1099s for our contract labor force, but we still spend the extra money here to have the CPA firm deal with these.
3. The third reason we like the program is the ease of use. You don’t need to have an accounting background to use the program. If you know how to write a check and balance a check book the old-fashioned way (at least the concept of how you do these tasks) then you can manage QuickBooks. This allows you with a little direction from your CPA to get your accounts set up and start tracking your business very quickly.
Also if you are hiring someone to do this for you, you don’t necessarily need a bookkeeper who costs a lot more per hour than a basic assistant. You could hire your teenager or a virtual assistant to enter transactions with a very minimal amount of instruction AND most virtual assistant that you can hire have often taken the time to learn how to use QuickBooks.
4. The fourth reason we like the program is the money savings. We have already mentioned the payroll and 1099 features, but the money savings goes on past that. If you don’t have a system and take a bunch of papers into the Bookkeeper at the end of the year, you could be spending $1000 on them sorting everything out, from manual entry to just digesting everything.
With QuickBooks you give them a copy of your digital books, they take a look and can with a few clicks of the mouse make sure you have entered everything correctly and then get the information they need to do your year-end taxes.
4. The fifth reason we like the program is the analytic we can use. We mainly will use the reports in #1 to see the profitability of a project. We can also compare projects. So for example we track projects that are rehab projects vs wholesale projects. We can see how much we spent and how long they took. Then when we are planning out the next year, we can see which type of investment was more profitable this year and where we might want to focus more of our efforts next year.
You can also compare total year to total year and project into the future. Not something a lot of real estate investors do, but we probably should. If you know that over the past 2 years you spent “x” amount on advertising to do “y” number of deals and make “z” amount of profit, you can then start to see and project what you need to do next year to hit income goals.
So if you are not already using QuickBooks, I suggest you go buy a program and implement it now, so that you can have a more organized next year.