Real Estate Financial Reporting – The important piece for your RE portfolio growth

Real estate accounting is no walk in the park; it comes with its fair share of complexities and challenges. 

From recording financial transactions related to property dealings, commissions, and expenses to ensuring compliance with various regulations, the stakes are high.

Just like a healthy bank balance is mission-critical for some businesses, in the world of real estate, accurate financial reporting is the name of the game.

Real estate financial reporting is multifaceted and demands attention to various aspects:

• Accounting
• Tax calculations
• Preparing supporting documents for taxation purposes
• Ensuring compliance with relevant authorities

But it’s not just about ticking boxes and staying within the lines. 

Financial reporting in the real estate world goes beyond mere compliance; it’s vital in helping businesses make well-informed decisions. It’s not merely a nice-to-have; it’s a must-have to ensure smooth operations and pave the way for growth.

Importance of real estate accounting

True and fair view of the business

The primary objective of real estate financial reporting is to depict a true and fair view of your business, that is, to show exactly where your business stands. Think about the financial reports as a mirror that reflects:

• Revenue of the business
• An insight into where the money is being spent
• Profitability of the business
• How the business is faring vis-à-vis the previous year
• Transparency to various stakeholders such as shareholders, lenders, and regulators

Regulatory compliance

Real estate businesses in Canada navigate a myriad of regulations. For example, real estate companies must adhere to IFRS (International Financial Reporting Standards) or the ASPE (Accounting Standards for Private Enterprises). These accounting standards protect the rights and the interests of the stakeholders, ensure consistent reporting and offer meaningful insights into the business performance. 

Failure to meet the regulatory requirements can have dire consequences such as:

• Penalties and fines for non-compliance
• A dip in the investor confidence as non-compliance may indicate financial mismanagement, misappropriation of funds, and gross negligence. Lenders and other stakeholders may find your company less attractive, resulting in costlier loans.
• An increased risk of legal issues from various stakeholders, including lenders and investors.

To ensure strict regulatory compliance, the accounting team must keep updated with the latest regulations, updates and policy changes.

Compliance With tax laws              

Taxation in real estate is a whole different ball game, and it’s all about navigating the complexities with precision, precision, precision. 

Accurate real estate financial reporting can ensure compliance with tax laws and help optimize profitability by managing capital gains and capital dividends, refundable taxes, and related issues.

With the proper financial reporting, real estate businesses can accelerate their business growth, while ensuring compliance with various laws.

Make informed decisions

Accurate real estate accounting can help in decision making across a range of activities, from auditing, tax planning to understanding seasonality etc. Timely real estate financial reporting includes:

• Preparing cash flow statements: An insight into the cash flow statement which helps you to understand the cash inflows and outflows of your business
• Maintain documents for auditing
• Ensuring that all the relevant tax benefits and rebates are availed
• Optimize expenses for improved profitability
• Identify business trends early on and be prepared
• Manage seasonal business fluctuations
• Purchasing new property and business expansion
• This helps real estate businesses make informed decisions and steer their business on the growth path.

Budgeting

Financial reports like Income Statements form the core of budgeting and planning. Accounting statements can help develop budget and forecasts for upcoming real estate projects.

It supports in developing realistic financial plans and measuring progress over time.

Attract Investors and Lenders

Lenders and investors will first glance through your financial reporting to gauge the business’s financial health, profitability and growth potential. Financial reports form the key documents for decision making by investors and lenders.

Lease management

Accurate accounting is crucial to manage lease agreement, collect rental income, and track payment status. It can help plug discrepancies in payment and collections, and prevents profit from leaking, leaving more cash in your bank.

Risk Management

Like in any business real estate financial reporting can red flag financial risks and help management take timely actions. Financial reports can flag issues early on before the problem escalates to an unprecedented level.

Why outsource real estate accounting in Canada?

Let us admit; real estate financial reporting in Canada is complex and can be overwhelming for real estate businesses. Whether you are a small and medium size real estate enterprise or an established one, outsourcing real estate accounting can offer several benefits:

Improve your bottom line

Outsourcing your accounting work to a reputed accounting partner is quite cost effective as compared to having an in-house accounting department. Here’s how:

• With a trusted real estate accounting partner, you can save significant money in terms of employee salaries and benefits of the accounting team. It will also minimize the efforts of the payroll team. The reduced operational cost will directly result in an improved bottom line.
• Avoid penalties and late fees due to non-compliance.
• Avail all the tax deductions that your business is entitled to
• Advice on legitimate ways to reduce tax burden

Improve your business performance

Outsourcing accounting to professional companies will give you ample time to focus on your core competencies such as growing your real estate business, property development and management, improving sales, enhancing market reach and more. You can improve your business performance and accelerate growth.

Error free, accurate financial records

Professional accounting firms with a deep understanding of real estate business can be an asset for real estate companies. They can benefit from the expertise and efficiency of the professionals who understand the technicalities and complexities of the real estate businesses. Also, professional accounting firms have multi-layered checking to ensure accuracy which ensures that you get accurate financial records.

KPIs to keep a check on business performance

Financial reporting by a professional company includes providing important key metrics such as return on investment, cap rate, net operating income, debt service coverage ratio, occupancy rate and many more, depending on your real estate operations. With KPIs you get an insight in to how your business is faring and you can compare it with the industry standards to boost your performance. KPIs can also flag early signs if things are not going well for the business.

Regulatory Compliance

Your accounting firm keeps updated about the various regulatory compliances a real estate business needs. They keep abreast of the changing laws and regulations to ensure timely compliance, saving your business from potential penalties and late fees.

Streamlined reporting

Trusted accounting professionals use latest technology and accounting software to streamline reporting. Detailed reports on collections can help you focus your efforts better and get paid timely.

Benefits of a subscription model

Real estate business typically sees volume fluctuations. Also, there are seasonal accounting workload fluctuations, where you need more manpower. When you outsource your accounting work, your service provider can give you the right resources to match the volume of work, saving you the trouble of hiring and firing the staff.

Data security

Data security and privacy remains a top priority for a professional accounting service provider. Because they serve many clients, they deploy stringent security measures and processes to keep your data safe and prevent unauthorized access of your financial data.

Whether you’re a small real estate broker, a mid-sized company, or a large real estate corporate, outsourcing real estate financial reporting can truly be a game-changer for your business.

Why get bogged down in the complexities of accounting procedures, compliances, and taxation when you can leave it to the experts?

Focus on what you do best – dealing in real estate – and let the professionals handle the rest.