Do You Need to Hire a Bookkeeper?
As a landlord and business owner, managing your rental property finances can be a time-consuming and complex task.
With so many responsibilities on your plate, you might be wondering if hiring a professional bookkeeper is the right choice for you.
In this guide, we'll discuss the pros and cons of hiring a bookkeeper as a landlord to help you make an informed decision.
Plus, we'll cover potential alternatives so you're familiar with all of your options.
Pros of Hiring a Bookkeeper for Your Rental Properties
First, let's talk about all of the pros of hiring a bookkeeper.
While it's not a universal fit for every business size, no one can really go wrong with hiring one outside of the cost.
Having said that, it is a little more complicated than that.
Let's look at the positives:
1. Improved Financial Accuracy
One of the primary advantages of hiring a bookkeeper is the ability to maintain accurate financial records.
Bookkeepers are skilled professionals who specialize in maintaining financial records and ensuring that they are up-to-date and error-free.
By working with a bookkeeper, you can benefit from:
- Accurate record-keeping: A bookkeeper can ensure that your business finances are consistently up to date, which is essential for tracking income, expenses, and the overall financial health of your rental properties.
- Error identification and correction: Bookkeepers have a keen eye for spotting and correcting errors in financial records. By catching mistakes early, you can prevent costly issues down the line.
- Streamlined financial processes: Bookkeepers can help you implement efficient systems for managing your rental property finances, which can save time and reduce the risk of errors.
2. Time Savings
Managing rental properties can be a time-consuming endeavor, especially when you factor in bookkeeping tasks.
Whether that's payroll for your staff, collecting rent, paying utilities, taking care of invoices, or running monthly financial statements, a lot goes into property accounting.
By hiring a bookkeeper, you can save time and focus on other important aspects of property management, such as:
- Tenant relations: Building strong relationships with your tenants is crucial for maintaining a successful rental property business. With a bookkeeper handling your finances, you can dedicate more time to addressing tenant concerns and fostering positive relationships.
- Property maintenance: Regular maintenance is essential for keeping your properties in good condition and preserving their value. By outsourcing bookkeeping tasks, you'll have more time to schedule and oversee property repairs and improvements.
- Marketing and leasing: Attracting and retaining tenants is a critical aspect of rental property management. With the time saved on bookkeeping, you can invest more energy into marketing your properties and finding the right tenants.
3. Expert Tax Assistance
Taxes can be a major headache for landlords, as rental property tax regulations can be complex and ever-changing. A bookkeeper can help you navigate these complexities by:
- Maximizing tax deductions: Bookkeepers are familiar with the various tax deductions available to landlords and can help ensure that you're taking advantage of every eligible deduction.
- Ensuring compliance with tax laws: A bookkeeper can help you stay compliant with tax laws, preventing costly penalties and legal issues.
- Reducing the risk of costly errors or penalties: By working with a knowledgeable bookkeeper, you can reduce the likelihood of errors on your tax returns, minimizing the risk of audits, fines, and other penalties.
4. Better Financial Decision-Making
Accurate financial records and expert insights from a bookkeeper can help you make more informed decisions about your rental properties.
With a bookkeeper on your team, you can:
- Analyze cash flow: Understanding your cash flow is essential for making informed financial decisions. A bookkeeper can help you monitor cash flow and identify patterns or trends that may impact your business.
- Evaluate property performance: A bookkeeper can provide valuable insights into the performance of each of your rental properties. By analyzing income, expenses, and other financial metrics, they can help you identify areas where improvements or adjustments might be needed.
- Identify areas for improvement or growth: With a clearer understanding of your financial situation, you can more easily identify areas where your rental property business can grow or improve. This might involve investing in property upgrades, expanding your portfolio, or adjusting your management strategies.
Cons of Hiring a Bookkeeper for Your Rental Properties
Now, let's touch on the cons.
We mentioned that you can't really go wrong by hiring a bookkeeper. However, that doesn't mean there are no cons.
Number one especially can be an issue and, if you're willing to do it yourself, can be worth it alone.
Here are the potential and real cons of hiring a bookkeeper:
1. Additional Expenses
Hiring a bookkeeper comes with a cost. Before deciding to hire a professional, you'll need to consider the potential impact on your bottom line. Factors to keep in mind include:
- Hourly or flat rates: Bookkeepers typically charge either hourly or flat rates for their services. Be sure to research rates in your area and determine what's most cost-effective for your business.
- Additional fees for specialized services: Some bookkeepers may charge extra for specific tasks or services, such as tax preparation or financial consulting. Be sure to ask about any potential additional fees upfront.
- Impact on profit margins: While hiring a bookkeeper can bring many benefits, it's essential to weigh the cost against the potential impact on your profit margins. If the expense is too great, it may not be the right choice for your business.
2. Loss of Direct Control
By outsourcing your bookkeeping tasks, you may feel a loss of direct control over your financial records.
This can lead to potential challenges, such as:
- Difficulty adjusting to a new system: Working with a bookkeeper may require you to adjust your existing financial management processes, which can be challenging at first.
- Monitoring the bookkeeper's work: Outsourcing bookkeeping tasks means trusting someone else to handle your financial records accurately. It's essential to establish a system for monitoring their work and ensuring that they're meeting your expectations.
- Clear communication and trust: When working with a bookkeeper, clear communication is vital. You'll need to trust that they understand your needs and expectations and that they'll keep you informed about your rental property finances.
3. Finding the Right Fit
Not all bookkeepers have experience with rental property finances, so finding the right fit for your needs may involve:
- Searching for a bookkeeper with relevant experience: Look for bookkeepers who have experience working with landlords and rental properties to ensure they're familiar with the unique financial challenges you face.
- Interviewing multiple candidates: Don't be afraid to interview several bookkeepers before making a decision. This will help you find the best fit for your specific needs and preferences.
- Ensuring their availability aligns with your requirements: Make sure the bookkeeper you choose can accommodate your schedule and provide the level of service you need. This may be particularly important during busy times, such as tax season.
4. Security and Privacy Concerns
Sharing sensitive financial information with a bookkeeper may raise security and privacy concerns. To mitigate these risks, consider:
- Performing background checks on potential candidates: Before hiring a bookkeeper, conduct a thorough background check to ensure they have a clean record and are trustworthy.
- Establishing clear security protocols: Work with your bookkeeper to establish clear protocols for handling sensitive financial information, including secure storage and transmission methods.
- Ensuring your bookkeeper is trustworthy and reputable: Ask for references from other landlords who have worked with the bookkeeper and check online reviews to ensure they have a solid reputation.
Alternatives to Hiring a Bookkeeper
If you're unsure about hiring a bookkeeper, consider these alternatives:
Alternative #1: DIY with Accounting Software
Many landlords choose to manage their finances using accounting software.
This option offers greater control over your financial records and can be more cost-effective than hiring a bookkeeper.
However, it requires time and effort to maintain accurate records and stay up to date with tax laws.
Alternative #2: Hiring a Property Management Company
Another alternative to hiring a bookkeeper is to work with a property management company.
These companies can handle various tasks related to managing rental properties, including bookkeeping.
While this option can save time and effort, it may be more expensive than hiring a dedicated bookkeeper.
Making the Right Decision for Your Rental Property Business
Deciding whether to hire a bookkeeper as a landlord ultimately depends on your unique needs, preferences, and resources.
By carefully considering the pros and cons outlined in this guide, you can make an informed decision that best supports your rental property business.
Remember to weigh the benefits (and there are many) but also be aware of the potential drawbacks like the additional expense, loss of direct control, the time it can take to find the right (i.e. a good) bookkeeper, etc.
Additionally, don't forget to explore alternatives like DIY bookkeeping with software or hiring a property management company if hiring a bookkeeper doesn't seem like the perfect fit for your situation.
Taking the time to analyze your options and assess your specific needs will help you choose the most effective approach to managing your rental property finances, giving you both peace of mind and your time back.