As with any business, your year-end closing practices and procedures are crucial to the success of your company. And one of the most important components for any commercial real estate brokerage businesses is year-end procedures for closing out the books regarding commissions owed to your business, commissions owed to your agents and past due commissions and receivables. The goal is to start the New Year with a fresh start organized and accurate.
Regardless of whether you have an in-house accountant or utilize a third-party, your year-end accounting practices will need to be reviewed by a certified tax professional. Often, many companies will make accounting mistakes throughout the year and these mistakes can end up being significantly costly – in time, efficiency, and potentially in tax savings.
CRE Accounting Tips & Best Practices for CRE Brokerages
But how do you know what is considered “best practices” in the CRE industry to achieve the best results?
With this in mind, below are some year-end strategies considered “best practices” in the CRE industry.
- Communicate, by early December, with your tax professional to get details of what they expect or need from you in order to file your current year tax return on time.
- Confirm with your tax professional that all of your brokerage revenues and expenses are recorded in the proper period of time, based on Generally Accepted Accounting Principles (GAAP). If you are not utilizing a commission-centric accounting package, such as CommissionTrac, Delius, BrokerMint or BrokerSummo to aid in properly handling these journal entries the new year is an excellent time for your organization to consider integrating them into your back office operations.
- Confirm that all necessary approvals, authorizations, and/or signatures have been properly documented for any necessary items, such as contracts, receivables, reimbursements, and any executive or management bonuses. Utilizing a commercial real estate software platforms that can streamline and provide a historical audit trail for year-end adjustments for review by a tax professional to review can add transparency to this process for your tax professional.
- Communicate with all third-party service providers to verify contract renewal options and determine if discounts are available with longer-term commitments or contracts.
- Balance real estate agent accounts and make any year-end adjustments for agent expenses and draws the company may decide to write off or continue into the new year are properly stated. Reconciling executive and management bonuses before year-end is also considered best practices and gives the business the ability to start the new year with a clean slate and expense the bonus in the year given.
- CRE brokerage partnerships should review the new tax laws and determine if they qualify for the Qualified Business Income (QBI) 20% deduction – and determine if they should make a higher than normal distribution as opposed to negotiating a better split for partners are who also producing agents.
- Create annual expense budgets and agent revenue projections to give executives and management the ability gauge and track the pulse of your CRE business throughout the year. A software platform with built-in pipeline capabilities will significantly streamline this process for any CRE executive.
- Reconcile and balance all credit cards, banks account, and any other money accounts – making sure that your balance is in line with any year-end vendor statements.
- Make sure that your year-end payroll expenses align with your monthly payroll taxes to properly complete IRS Form 940.
- If applicable in your state of residence, run an end-of-year report of all sales tax due on recorded brokerage commission.
- A critical component of year-end procedures is to evaluate new technologies and software platforms that are available to help manage and streamline your CRE brokerage business with more transparency, efficiency, and profitability.
Finally, owners of brokerage businesses should discuss with a tax professional whether they should consider making equipment purchases before year-end to take advantage of the expanded bonus depreciation rules created in 2018.
CRE Technology Company
To find out how you can use technology to manage your year-end accounting practices along with your companies receivables, commission plans, invoicing and distributions, please sign up for the CommissionTrac blog and learn why Techstars Atlanta selected CommissionTrac as their first CRE application for their intense 90-day mentorship program joint-ventured with Cox Communications. Learn more about CommissionTrac and request a demo today.