Benefits Of Commercial Real Estate Accounting

Last Updated on October 20, 2022 by Kylie Morrison

Commercial real estate is a valuable asset, and its business is growing fast. Commercial real estate includes office spaces, retail, industrial, and hospitality-related properties. Commercial real estate produces multiple income sources if given on rent and on-sale capital appreciation. It ensures steady cash flow, helps build substantial equity, and provides excellent value on sale. We must remember that accounting is crucial to owning and operating a commercial real estate property.

Benefits of Commercial real estate accounting

Accounting might be considered a tedious and complicated task. It is important to note that by accounting for commercial real estate, we reap multiple benefits, including accurate income tracking, expenses, tax deductions, and tax shields that are available to us. As investors in commercial real estate, we must stay up-to-date on the industry, tax regulations, and accounting practices. Using the services of the best commercial real estate accounting professionals provides us with many short-term and long-term advantages. Accounting for real estate offers a systematic method of cost planning and performance measurement. It helps to summarise, record and analyze all the business and financial information.

  • Improve cash flow:

Good commercial real estate accounting practices help us to get the rent collections and create tenant statements conveniently. This helps us expedite collections of rental incomes from the leases, encouraging the real estate lessees to pay their rental dues on time and our supplies at the end of the credit period made available to us. A proper accounting system can help us record and track these various transactions through the Accounts Receivable and Accounts Payable system, ensuring the timely completion of all tasks.

  • Better control over the organization’s finances:

Proper accounting practices help revenue streams by suggesting tweaks in the collection methods and flagging problematic accounts by keeping a close track of the revenue and expense flows. Accounting software is programmed to send alerts on our mobile devices when a particular rent payment is credited in the bank, and expense payments are overdue. This allows us to optimize our fund management policies. Professional commercial real estate accounting services help to monitor all such transactions efficiently. We can obtain a ready-made solution for managing funds more efficiently.

  • Reducing accounting expenses indirectly:

During the tax season, the accountants and other finance-related employees work day and night. This leads to a significant increase in employee costs relating to accounting during this period. There are accounting systems that automate transactions to a certain extent. When we use outsourced bookkeeping services from a professional firm, the costs for completing the financial and tax account statements become relatively cheaper. This helps in reducing the overall accounting expenses.

  • Safety nets:

Good accounting practices include backups of all the critical documentation, processes, data, and information. This way, we can be protected from data loss due to unforeseen mishaps and losses. Auditors during an internal or external audit can check all the data and information to verify the accuracy of the same. This will enable the auditor to complete the audit in a short period. An efficient accounting system, whether manual or automated, records all the footprints in the accounting process. All invoices and receipt vouchers are correctly stored. This provides all the documentary evidence and creates the foundation for ensuring that the audit process goes smoothly. An organized deck of accounting information and records is made instead of having all the accounting staff fumbling for documents.

  • Performance tracking:

Commercial real estate accounting is not merely a number-crunching exercise. If the organization holds multiple properties, we need to assess whether all the properties under our umbrella are lucrative and cash accretive. After our funds have an opportunity cost, we need to ascertain whether any reallocation of our resources is necessary. We may need to sell off properties that are not net-income generating and invest in more profitable properties that show the potential of getting more profit. Professional commercial real estate accounting services will provide valuable insights into our real estate portfolio performance. These include :

    • Rental performance of various properties,
    • Underperforming real estate properties that the organization could potentially sell,
    • Comparing year-on-year metrics on the commercial real estate portfolio,
    • Compiling a report analyzing the historical performance of all the properties in the portfolio etc.
    • Knowing how much each property generates and having the accounting numbers at our fingertips helps us better manage our commercial real estate portfolio

Key Takeaways

Having an excellent commercial real estate accounting system in place helps us in the better management of our property portfolio. It helps us to weed out unproductive properties and purchase the more profitable properties. An automated accounting system reduces accounting delays and the scope for human accounting errors.