In the world of real estate investing, most people focus on the initial business plan. You need to invest $X to make $Y in profit. This is the exciting aspect of buying income properties, but it doesn’t cover the whole picture. In fact, the only way to truly sustain profitability is through effective bookkeeping strategies.
Let’s take a closer look at the difference between business plans and bookkeeping services and how they affect one another.
Business planning is about making “the deal”
The business plan is the first stage of an investment, but it shouldn’t be viewed as an isolated step. It’s easy to get caught up in making the deal because that’s where the excitement lies. However, a deal may look good on paper, but it may not be a good long-term deal from a bookkeeping perspective. That is why we consider future bookkeeping during the business planning stage to create a reliable foundation for financial growth.
Bookkeeping is the ongoing evaluation of “the deal”
Many real estate investors get locked into the initial deal, so they stop tracking their results. This oversight can make a moderate investment seem like a home run because the numbers are inadequate or nonexistent. That’s where bookkeeping services come in. This is the checks and balances element of investing that ensures continued profit and growth.
With the proper bookkeeping systems in place, you can clearly see how well each project is performing and where there’s room for improvement. Perhaps the overhead was higher than expected, or the debt payments increased along the way. The bookkeeping process analyzes all of these elements so you can make profitable adjustments quickly.
How to integrate bookkeeping into your business plan
Bookkeeping and business plans should go hand in hand. If you only get bookkeeping, you’ll think it’s a waste of time. If you only have a business plan, you’ll never know how to improve your business.
At Lionshare Bookkeeping, we take a holistic approach to real estate bookkeeping. We created a free calculator and webinar to help you overcome common mistakes that real estate investors make. Our system, known as the DOOR Method, covers these crucial numbers in property business planning:
- Debt payments—How much you have to pay each month on your loans
- Owner pay—How much you keep as “free and clear” cash
- Overhead—Business expenses not related to the property itself
- Rent or revenue—The monthly rent or revenue from the investment
With these four numbers, you can create a lucrative business plan that is maintained through consistent bookkeeping. Look at the big picture, not just step one. Evaluate your overall investment, not just the initial expenses. This collective view is the key to continual success in real estate.