10 June 2024
The Ultimate Guide to Outsourced Accounting for Real Estate Investors
For professionals balancing a full-time job with managing real estate investments, accounting often takes a back seat. Time is precious, and manual bookkeeping is not a priority when you are focused on expanding your portfolio.
Delving into the intricacies of real estate accounts may not be thrilling, but it is crucial for building wealth. As your portfolio grows, managing multiple properties with varied financial structures becomes increasingly complex. Outsourcing accounting to specialists frees up time and ensures accuracy.
Partnering with a CPA firm specializing in real estate offers numerous advantages. However, if you are new to outsourced accounting, navigating the process can be daunting. This guide introduces outsourced accounting for real estate investors, covering what you can outsource, the pros and cons, and helping you decide if it is right for you.
What are Client Accounting Services (CAS)?
Outsourced accounting, also known as Client Accounting Services (CAS), involves delegating most, if not all, accounting tasks to an external accounting firm. CAS typically comprises three main tiers: bookkeeping services, controller services, and CFO services. These firms heavily leverage technology, often relying on cloud-based accounting software with features like performance dashboards, automated bank connections, and secure data access. Centralizing all financial data in one place facilitates seamless communication between clients and accountants.
CAS provides busy business owners with a way to offload their accounting needs to an external partner. While there are significant benefits, such as improved financial organization, there are also drawbacks. Without the right partner, businesses may miss specialized financial knowledge crucial for faster growth.
What Is Outsourced Accounting?
Outsourced accounting, akin to Client Accounting Services (CAS), involves delegating some or all of your accounting functions to an external CPA firm. At Gallagher & Mohan, we specialize in providing outsourced accounting services to real estate investors, managing the accounting needs of thousands through our advisory, tax preparation, and accounting practices.
When you partner with an outsourced accounting firm, you hand over the daily operations of your accounting tasks to a team of professionals. They will establish a digital-first accounting system designed to track your business performance efficiently. This system is managed continuously by your outsourced accountant.
The services provided by outsourced accounting firms vary based on the level of service chosen. Typically, you can expect monthly financial reports and bank reconciliations. Many firms also offer advisory services as needed, assisting you in making informed financial decisions to maximize returns.
Outsourced accounting services are utilized by a diverse range of individuals and businesses. Given the specialized nature of accounting, finding the right match for your specific needs is crucial. There are two primary ways to outsource accounting: working with a traditional local CPA firm or partnering with a firm specializing in your industry. The latter offers the significant advantage of domain expertise, helping you optimize your financial performance.
Also Read: How Real Estate Outsourcing Can Transform Your Business
Who Uses Outsourced Accounting Services?
Outsourced accounting services are widely used across various industries, with significant popularity in real estate. The global finance and accounting outsourcing industry is valued at $37.9 billion and is projected to grow to $53.4 billion by 2026. Currently, 37% of businesses outsource their accounting needs, a figure expected to rise as more companies recognize the benefits.
Technological advancements have made the workflow between clients and accountants more efficient, fueling the growth of outsourced accounting. In the real estate sector, outsourced accounting is particularly popular among:
- Landlords and property owners
- Wholesalers
- Real estate syndicate and fund managers
- Agents and brokers
- Property flippers
The demand for outsourced real estate accounting services is booming, driven by a growing number of real estate professionals. Many millennials are opting to invest in real estate over the stock market, and 72.5% of rental properties in the U.S. are now owned by individual investors. This new generation often lacks the time or expertise to manage accounting functions independently, turning instead to the efficient, digital-first solutions provided by outsourced real estate accounting firms.
When Should You Outsource Your Accounting Needs?
It's advisable to start using outsourced accounting services early in your investing journey to establish a solid financial infrastructure that supports scalability.
Early Stages
When you are just starting, the volume of work does not justify hiring a full-time accountant or bookkeeper. Moreover, hiring, onboarding, and training an internal accounting team requires time and expertise that you may lack. Outsourcing is more cost-effective than maintaining an in-house team and allows you to focus on growing your investments rather than managing administrative tasks.
As Your Portfolio Grows
As you acquire more properties, the complexities of real estate investments increase. Managing multiple mortgages, LLCs, bank accounts, and various expenses, from repairs to property management fees, becomes challenging. Minute details, such as missed rent payments or unexpectedly high utility bills, can easily slip through the cracks. An outsourced accounting firm can implement the necessary processes to catch these issues, saving you money and accelerating the growth of your portfolio.
Leveraging External Expertise
Outsourcing your accounting enables you to leverage external expertise, establishing the financial foundations needed to scale your portfolio to dozens of properties. The right accounting partner helps you manage cash flow effectively, track mortgage balances, and identify opportunities to optimize performance.
By outsourcing accounting, real estate investors can focus on expanding their portfolios while ensuring their financial operations are managed efficiently and accurately.
Also Read: Commercial Lending Solutions: Your Key to Real Estate Investment
Which Accounting Services Can Be Outsourced?
When deciding to outsource your accounting, you might wonder which specific services can be outsourced. The good news is that every aspect of accounting can be outsourced, from monthly reporting to payroll management. Here are some of the most outsourced accounting services by real estate investors:
- Outsourced Accounting Infrastructure Management
The first step in many outsourced accounting engagements is setting up a digital-first accounting infrastructure. Many real estate investors, especially those with a few properties, often lack a robust system to manage their finances, leading to a limited understanding of their property's performance.
An outsourced accounting firm can establish a digital accounting system that links bank accounts, tracks rent payments and expenses, and stores receipts and invoices. Software like QuickBooks is often used for this purpose. Once the system is set up, the firm can either train you on its use or manage it on an ongoing basis.
- Outsourced Bookkeeping
Bookkeeping is often one of the first tasks real estate investors look to outsource as their portfolio grows. Bookkeepers are responsible for organizing financial records, recording transactions, performing bank reconciliations, and maintaining ledgers. These tasks, while necessary, are time-consuming and monotonous.
Outsourcing bookkeeping to an external partner provides more value than hiring a single bookkeeper and is often less expensive. An outsourced bookkeeping service will ensure that your financial records are accurate and up to date, forming a crucial foundation for making informed investment decisions.
- Outsourced Payroll
As your real estate portfolio grows, you will likely hire employees such as contractors, property managers, and cleaners. Managing the payroll for these employees involves more than just running the payroll each month. You must also oversee tax filings, data security, and compliance, especially if operating in multiple states.
Outsourcing payroll shifts these complexities to an accounting partner, allowing you to focus on running your business without the burden of payroll management.
- Outsourced Financial Statements & Reports
Real estate investors lack insight into their portfolio's performance outside of tax season. Regular financial statements and reports can prevent surprises, such as unexpected tax liabilities, and reveal opportunities to optimize your portfolio.
Outsourced accounting firms provide regular financial statements and reports. For example, at Gallagher & Mohan, we offer our clients monthly financial statements that provide a clear understanding of their portfolio's performance, enabling smarter investment decisions.
By outsourcing these accounting functions, real estate investors can benefit from professional expertise, save time, and focus on growing their portfolios.
Also Read: Financial Analysis & Accounting Best Practices for Lodging and Hotels
What To Look for in an Outsourced Accounting Provider
Choosing the right outsourced accounting firm is crucial to the success of your real estate business. Here are key factors to consider when assessing potential partners:
Industry Specialization
- Real Estate Expertise: Ensure the firm specializes in real estate accounting. A general CPA firm may not have a deep understanding of real estate tax codes and best practices that a specialized firm offers.
- Experience with Similar Clients: Look for firms with a proven history of working with real estate investors. Specialists can tailor financial strategies to your portfolio's unique needs and help you implement advanced tax strategies.
- Real Estate Knowledge: At Gallagher & Mohan, for example, our accountants are real estate experts, and many are real estate investors themselves. This level of expertise can make a significant difference to the advice and service you receive.
Case Studies and Testimonials
- Proven Results: Look for case studies and client testimonials that provide tangible evidence of the firm's effectiveness. This demonstrates their ability to deliver real value.
- Reputation in the Community: Ask around local real estate investor groups for recommendations. Positive word-of-mouth from fellow investors can be a reliable indicator of a firm's quality.
An Approachable Team
- Trust and Communication: The firm should be approachable and responsive. You need to feel comfortable asking questions and confident that your concerns will be addressed promptly.
- Client Experience: Look for a firm that prioritizes client communication, responds to emails within a couple of days, and is willing to schedule calls or meetings to discuss your needs.
Additional Value
- Beyond the Basics: The best firms offer more than simply basic accounting services. They provide ongoing education and resources to help you grow your business.
- Value-Added Services: At Gallagher & Mohan, we offer additional value through podcasts with real estate experts, in-depth investment guides, an annual virtual conference, and an exclusive Facebook Group for real estate investors.
By focusing on these factors, you can find an outsourced accounting provider that not only manages your financials but also contributes to the growth and success of your real estate investments.
How to Start Outsourcing Your Accounting
If you are ready to outsource your real estate accounting needs, Gallagher & Mohan can provide the expertise and support you need to streamline your financial processes and optimize your portfolio's performance.
Initial Consultation
To begin, reach out to Gallagher & Mohan to schedule an initial consultation. During this consultation, you will have the opportunity to discuss your portfolio, current accounting practices, and specific needs. This initial conversation is crucial for determining how we can best assist you and tailor our services to meet your unique requirements.
Kick-Off Call
Following the initial consultation, we will set up a kick-off call where you can meet your personal advisor. This call is designed to align expectations, discuss your portfolio in detail, and address any initial questions you may have. The goal is to ensure that both parties are on the same page and to develop a tailored plan for implementing your new accounting infrastructure.
Implementing Your Accounting System
Next, our team will implement the accounting system customized to manage the unique needs of your real estate portfolio. This involves linking bank accounts, setting up tracking for rent payments and expenses, and establishing a process for storing receipts and invoices. This digital-first accounting infrastructure will provide a comprehensive view of your financial performance, making it easier to manage your portfolio.
Ongoing Management
Once your new accounting system is in place, you can choose the level of involvement that suits you best. Whether you prefer to manage your own accounts or fully outsource your monthly bookkeeping through our full-cycle program, we offer flexible options to meet your needs. With regular monthly financial statements and reports, you will be able to monitor cash flow and portfolio performance with ease.
In addition to bookkeeping, our accounting advisors are available on an as-needed basis to answer questions and provide tax advice. This ongoing support ensures that you have access to expert guidance whenever you need it, helping you make informed financial decisions and optimize your investment strategies.
Get Started Today
Interested in learning more about how Gallagher & Mohan can transform your real estate accounting? Request for a free consultation today and take the first step towards a streamlined, efficient accounting process that supports your investment goals.
