These 8 Commercial Real Estate Accounting Mistakes Will Kill Your Brokerage
Turner Levison | June 21, 2019
Updated: June 21st, 2019
What’s that saying, “fool me once, shame on you, fool me twice, shame on me?” How about applying that cliché to accounting mistakes?
In a world where a wrong addition or subtraction sign translates to thousands or millions of dollars lost, accounting errors are more than a headache. They’re a fatal business blunder.
In this post, you’re going to learn about:
- Major mistakes that can spell disaster for your reputation and your commercial real estate accounting
- What technology can do to help your brokerage implement the best accounting practices possible
Let’s dig in, shall we?
1. Separate Tracking of Commissions
“Let’s do twice the work and increase our chances for errors!” said no business person, ever. No one likes redundancy.
If you’re tracking commissions separately from your back office, it’s virtually impossible to see who owes you money and who you need to pay. If you have several agents, and aren’t able to quickly calculate how much you owe them when a check comes through, that can make things difficult for the accounting side, and it’s frustrating for managing partners that there isn’t transparency of how much is owed.
When tracking commissions separate from accounting, this is exactly what you are doing. Keeping these tasks separate creates more work and increases the chances of human error. Today’s technology providers – like CommissionTrac – exist to make back-office brokerage work more accurate and efficient, not harder!
2. Simple data entry errors
No one wants to make an error, and while to err is human, accounting is not the place for errors. The smallest change to a decimal point or mistyped percentage can throw other calculations out of whack.
Additionally, many commercial real estate firms only have one person managing their back office, and it’s imperative they’re able to confidently present books that are 100 percent accurate, because there is rarely anyone checking the office manager or the controller’s work.
And that can be so tough for that one person to do, especially using old-fashioned commercial real estate accounting methods — like using spreadsheets and crossing your fingers you don’t accidentally mess up something in Excel.
Because who corrects the person responsible for all finance and accounting?
3. Impossible to Effectively Scale
In commercial real estate, no matter the size of your brokerage firm or how many agents you work with, the goal is always growth. (Unless, of course, the goal is to simply maintain.) That said, there are definitely several ways to accomplish this.
You can add more to the top of the line, you can add more agents or brokers, or you can add more people in different regions. All of these are good things, but that means you’re going to have more transactions to deal with, more commissions to calculate, and more deals to manage.
Ultimately, the number one challenge with all of this is without some way to manage all of this growth effectively and efficiently, you’re going to need to scale the back-office as well to meet the demand of the increased transactions.
But the good news is that there is some truly great technology on the market that can help you optimize and streamline your day, without increasing company costs by hiring a bunch of new staff.
4. Early Disbursement of Funds
You’d think this huge real estate gaffe wouldn’t happen in today’s world of oversight, but it does. Besides a headache for the accountant, early disbursement of funds makes a brokerage non-compliant with their overseeing bodies.
Deals can fall through for any reason; don’t send funds until the keys are exchanged and documents signed.
5. No Data Back-Ups
We’ve all had that moment when technology failed. We closed a document before saving, or the computer crashed mid-work, or a virus wiped the drive. Your heart just sinks into your chest.
Now apply that scenario to the accounting division of your CRE brokerage. Talk about catastrophic! Your CRE back office software should be scheduled to automatically back up often. Better yet, use a cloud-based system and never have to worry about it ever again!
6. Lack of Training
Ever had a broker hire a close family friend as an accountant who doesn’t know the first thing about expenses versus income, much less commission splits? Real estate firms need a trained person who understands brokerage technology, and knows about tax regulations, deadlines, payroll maintenance and more! Ideally, they also have experience specifically in commercial real estate accounting.
Without a background in real estate-specific accounting knowledge (let alone commercial real estate), even the most intuitive, automated accounting software can become a burden. After all, you’re trusting your accountant to program variable splits and understand concepts like Quickbooks integration.
7. Mixing Personal and Business Accounts
We hope most real estate professionals know to avoid this huge error, but for novices, it’s worth mentioning. Even for self-employed real estate agents, keep a separate business account for depositing commission checks. This simplifies record-keeping, especially for expenses and calculating taxes.
8. Inaccurate Data Classification
Without a clear classification system, your commercial real estate brokerage will devolve into chaos. Regularly audit the accounts to ensure all receivables and payables are documented accurately, and keep clear labels for things like income, debts, and payments. This keeps all your ledgers and reports as correct as possible.
See how CommissionTrac brings sanity to the back-office
There you have it:
seven eight accounting errors that kill commercial real estate firms. Today we have the right technology tools in place to avoid these deadly business mistakes. We created CommissionTrac with the mission to help brokerages avoid these types of errors. After all, an accurate and efficient accounting back office platform helps a brokerage successfully reach their goals.
If you are looking for a platform that effectively streamlines and automates your brokerage and increases the happiness of your agents, then give CommissionTrac a try today.