A very exciting article on setting up your chart of accounts. Edge of your seat stuff, said no one. Anyway, it is extremely important. When you first start running your real estate business, by all means, I suggest just running with what is there. As at that point, the most important thing is getting more listings and rentals on your books.
The Importance of Organizing Your Chart of Accounts
Once you have a steady income coming in, you need to be able to easily see where that money is going, measure profits, and easily spot leakages. By leakages, I mean expenses that have crept in that you could not see without having a nice report you can pull from MYOB or Xero, depending on which accounting software you use.
The Confusion of Pulling a Report
When you first pull a report, I can guarantee, it will leave you confused, as things have gone into the wrong spots whether that be on the revenue side or the expense side. The expense side is the topic of this article. Most bookkeepers or account clerks will not be able to distinguish the difference between property advertising and company advertising, which is understandable.
Separating Costs of Sale from Advertising and Marketing
Advertising, like realestate.com.au, signages, and photographers must not be put in advertising or marketing, as it is not that, it is a cost of sale. The revenue that then comes in when you invoice the supplier must then offset that unless you have charged extra. The difference can then be tagged as revenue. I hope you are still with me here.
Creating Clear Definitions
So that you can measure what you are spending on the business to get it out there, I suggest that you have 2 expense accounts in your chart of accounts.
- Business Advertising
- Business Marketing
This way, you can clearly define what is what. Inside of advertising should be the costs of getting the word out, e.g Facebook ads, Google ads, newspaper, and SMS. However, marketing should be the cost of the creatives that you make for those ads.
They really are two different things, and you need to be able to see these things clearly. Make sure that they do not get mixed up with property marketing. Every business should have a carefully crafted plan to let people know that you sell and manage properties. I am assuming, though, that a lot do not, and just start to throw some things out there, hoping something sticks.
If this is you and you also have a messy chart of accounts that is not tracked properly, I can assure you are blowing thousands of dollars that should be in your pocket monthly. Just recently, I read a book that was in the marketing space that is targeted towards small businesses called, “The One-Page Marketing Plan”. It is really perfect for businesses with less than $5,000,000 turnover. If you do not have the plan, get that in place before worrying about setting up your chart of accounts.
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