How would you feel if you had to watch as your hardearned wealth goes up in flames because you failed to make sure that your finances were in order? The word horrible comes to mind. Statistics show that about 49 % of small businesses will not be able to survive for 5 years or more. So, if this is a fate that you want to avoid as a real estate investor, your bookkeeping must be in order.
And while you have the option of hiring a bookkeeper to sort out your business finances, you still need to take an active role in managing them. You could start by identifying the common mistakes small businesses make and do everything you can to avoid or rectify them.
So, what are these mistakes? And how should you go about addressing them?
1. Using a Personal Account for Business Transactions
A personal bank account is for personal financial transactions. This is the account that allows you to pay your personal expenses and keep your savings. But many small business owners, which include those in the real estate, tend to use personal bank accounts for business transactions.
This is a big nono.
At no point in time should you do such a thing. How are you going to trace what is coming in from your business? And how will you be able to separate your personal and business transactions?
Mixing things up in this manner is a recipe for trouble. Sooner or later, the IRS may require you to account for all monies coming into your real estate business, and you will be unable to meet their requirements – at least not without some expensive accounting help.
If you are currently running your business and personal life from one bank account, you need to do something to change that. Opening a business account takes a short time but will save you a lot of grief in the long term.
2. Paying For Business Transactions Using Personal Debit and Credit Cards
Are you one of those real estate investors that use your personal debt and credit cards to pay for business transactions? You need to stop. Doing this is just as bad as using a personal bank account to run your business operations. It’ s going to be very difficult for you to keep track of your personal and
Image from Canva Pro business expenditures. You will need to spend more time and effort to find out what belongs where, which you may not be able to do. So, what should you do? It’ s really simple: get separate debit and credit cards for your businesses. And if you are not in a position to do so, then dedicate one debit or credit card to business transactions for easy accounting. Doing so helps you build creditworthiness not just on a personal level, but on a business level as well.
3. Poor Record Keeping
Are you one of those people who assume that when the time comes to do your taxes you will remember it all? How is that working out for you? Poor record keeping is a serious issue for some real estate investors. You may fail to keep receipts of the building or renovation materials that you use. You may also fail to keep a record of your debts or payments to freelance professionals that you hire. Categorizing employees or expenses wrongly may also be an issue. Regardless of what the problem is, poor record keeping will come back to haunt you in the very near future – when the taxes come calling.
Image from Canva Pro
“ Are you one of those real estate investors that use your personal debt and credit cards to pay for business transactions? You need to stop.”
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