Being a landlord can be a rewarding experience, but managing the financial side of things can quickly turn into a headache if you’re not used to it. Here’s where strong bookkeeping comes in – it’s the secret weapon of successful landlords.
Here’s 8 of our best tips to help any landlord stay on track of their bookkeeping.
1 – Keep your accounts separate
Keep your personal finances separate from your rental income and expenses. Open a dedicated bank account for your property income to make tracking easier. This will also help come tax time when you need to separate your business income and expenses from your personal ones.
2 – Categorise Transactions
Classify your income (rent) and expenses (repairs, mortgages, insurance, etc) into clear categories. This will give you a clear picture of your property’s financial health. You can use a spreadsheet or accounting software to do this.
3 – Track Everything
Don’t let receipts pile up! Develop a system to record every transaction, ideally in a digital filing system such a Xero or Hammock. Most accounting software programs allow you to scan or upload receipts electronically, meaning even if you lose the physical receipt, you still have a copy saved!
4 – Embrace Automated Systems
Many accounting software programs are designed specifically for landlords. These tools can automate tasks like rent collection and expense tracking, saving you valuable time.
5 – Choose your accounting method
There are two main accounting methods used by landlords: cash accounting and accrual accounting.
Cash Accounting: This simpler method records income when you receive rent, and expenses when you pay them. This is the most common method used by landlords.
Accrual Accounting: This method records income when it’s earned (even if not received yet) and expenses when they’re incurred (even if not paid yet). This method is more complex, but it can provide a more accurate picture of your property’s financial performance.
6 – Reconcile Your Accounts Regularly
This means checking your bank statements and credit card statements against your accounting records to make sure everything matches up. This will help you catch any errors early and can help to prevent fraud.
7 – Backup your records
It’s important to back up your bookkeeping records regularly in case of a technical issue. You can back up your data to the cloud, an external hard drive, or both. If you are using a cloud based software, this is automatically done for you.
8 – Types of rental properties
It is important to understand who the type of property you have – is it a long term rental, or is it an FHL (furnished holiday let). They have different tax rules attached to them, including rules about who reports the income. It can have an implication on how you record the bookkeeping and what you can claim for.
Why is bookkeeping important for landlords?
- Maximise Profits: Track income and expenses to see where your money’s going. This way, you can identify areas to cut costs and boost your return on investment (ROI).
- Tax Saving: Accurate records make filing taxes a breeze. You’ll easily identify tax-deductible expenses, potentially saving you a significant amount of money.
- Informed Decisions: Good bookkeeping data empowers you to make smart choices about your properties. Analyse trends and plan for maintenance needs.
At Turas Accountants, we have many years’ experience in helping landlords with their bookkeeping and accounting. We offer a fully comprehensive service for property owners and landlords. Whether you own one property or several, it is crucial to ensure you are complying to all HMRC requirements. Whether it’s day to day bookkeeping tasks, or annual account reports that you need help with, we can help!