If you've considered working in Nashville property management, you know that you're in for a lucrative career.
So what's stopping you? There's one major factor that holds many would-be investors back from getting started. You need to understand effective budgeting and financial reporting for your work.
It's not as frightening as it may seem, and in this guide, we'll show you how the process works.
Here's what you must know:
Prepare a Balance Sheet
The first step when accounting for property management is to prepare a balance sheet for all your properties. This is what you'll use as a reference to assess your financial status.
Within the balance sheet, you'll have to record the following:
- Assets - all your properties and cash
- Equity - your real estate holdings minus liabilities
- Liabilities - all your business expenses
Create one column for each of these categories. Create a row for each month, and use each sheet in your spreadsheet to represent a single year.
The next step is to create your income statement for your investment portfolio. Here, you'll keep track of your earnings and expenses.
You'll reference this statement to check if you're making a profit or loss. This can help you prepare for future scenarios, such as renewing leases.
You should keep track of your income each month, quarter, and year. Within each timeframe, record the amount of your earnings or losses. This helps you keep track of your budgeting.
Make sure you don't include your security deposits, as these will have to be refunded unless the tenant breaks the contract.
Budgeting and Financial Reporting
Now let's look at how you'll handle your budgeting and financial reporting responsibilities.
You should keep a goal of how much you wish to save and earn each period. At the end of each period, you can keep note of whether you met or didn't meet your goal.
You'll also need to share this information with your accountant. They'll need your financial records to prepare your tax forms.
What should your goal for a budget be?
You should prepare both a capital budget and an operating budget. The former refers to budgeting for the future. This will help you determine how much cash you'll need for future goals related to your property management venture.
The operating budget is how much you'll need to cover your regular property management expenses. These expenses can include:
- Basic property maintenance
- Utility costs
- Office costs
- Insurance fees
- Financial services fees (bank fees, accounting costs, etc.)
- Legal fees
While updating your spreadsheets, you'll have to ensure that you don't fall short of either of these budgets. Make sure you hire a professional accountant to offer further budgeting tips.
Get Started With Property Management
Now you know the guidelines for effective budgeting and financial reporting with property management.
You have to first prepare a balance sheet. With this spreadsheet, you'll keep track of your assets, equity, and liabilities.
Next, create your income statement to keep track of your profits and losses. You'll also have to set a capital budget and operating budget at all times.
Do you need to learn more about how property management in Nashville works? PMI Middle TN, the best in the business, is waiting to hear from you.