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Commercial real estate accounting is an intricate, complex process. It involves the tracking and reporting of financial information related to commercial properties, such as rental income, expenses, taxes, and more. A successful commercial real estate accountant must be able to make sense of a wide range of data and utilize that data to help property managers and owners make informed decisions. Let’s take a look at some of the basics of how commercial real estate accounting works.
The success of any business depends on accurate records and proper bookkeeping practices. This is especially true in the commercial real estate industry where there are many moving parts that need to be tracked and reported upon. The accountant’s job is to ensure that all financial records are accurate and up-to-date so that the company can make educated decisions when it comes to budgeting, taxes, marketing efforts, etc. This requires the accountant to have an in-depth understanding of both finance and the specific issues related to commercial real estate.
In addition to maintaining accurate records, a good commercial real estate accountant must also be aware of all applicable regulations surrounding their properties’s reporting requirements. This includes filing taxes with local governments as well as submitting reports to various state agencies or organizations and investors, depending on the nature of the business in question and funding sources. A thorough knowledge of these requirements is necessary for a commercial real estate company’s success as failure to adhere could result in hefty fines or other legal actions.
Accounts payable is an important element to consider when investing in commercial real estate. Accounts payable is the amount of money that a business must pay for maintenance, repairs, supplies, appliances, and other expenses/bills associated with running a business. When it comes to investing in commercial real estate, accounts payable can impact cash flow, debt service payments, owner distributions, and a properties overall financial well-being. For instance, if a commercial property has high accounts payable amounts due but low rent rolls or income inflows, then this could have a significant impact on their ability to make debt payments on time or even stay afloat financially. It is important for investors to consider the amount of accounts payable associated with any potential investments so as to ensure that they are making sound decisions and managing their finances appropriately.
Accounts receivable is another vital component in commercial real estate accounting. This represents the money owed to the business by tenants or other parties. It’s essential to monitor these amounts closely to ensure that payments are made on time, thereby maintaining cash flow. Regularly reviewing and reconciling accounts receivable can help in identifying potential issues such as late payments or non-payment, allowing the business to take appropriate action. It’s also important to provide accurate and timely invoices to tenants and to keep track of all payments received.
Common Area Maintenance (CAM) reconciliations are another crucial part of commercial real estate accounting. These reconciliations involve determining the actual costs of maintaining common areas, such as lobbies, parking lots, and shared facilities, and then allocating these costs to tenants based on their lease agreements. Accurate CAM reconciliations ensure that the property owner recovers these costs appropriately. This process requires a keen understanding of both the costs involved and the specific terms of each tenant’s lease.
In order to remain organized and efficient, most companies utilize some sort of accounting software solution for their day-to-day operations. At REA, we specialize in leveraging Yardi Voyager, AppFolio, Rent Manager, Buidium, MRI, and many others to help our clients keep their finances in order. These software solutions streamline processes such as invoicing clients, tracking payments received from tenants or other sources, managing budgets and expenditures, generating reports for stakeholders or investors, etc., leaving more time for decision-making rather than menial tasks. For companies involved with commercial real estate ventures, this type of software solution can be invaluable in ensuring accuracy while reducing costs associated with manual record keeping processes.
Commercial real estate accounting is an essential part of any successful business endeavor involving property management or real estate owner operators. Proper planning and implementation must be taken into consideration when dealing with this complex issue; however, having experienced professionals on staff who understand both finance and the nuances related to commercial properties can ensure smooth operation while maximizing profits over time. Utilizing cutting edge accounting software, along with REA’s outsourced real estate bookkeeping solutions, can help streamline processes while improving financial accuracy every month – ultimately saving time and money by freeing up resources for other areas within the organization!