Create Your Property Management Invoice Template for Planning

Property management invoice template for Planning

so you need a chart of accounts you don't know what a chart of accounts is how does it work how do you set it up what if everything messes up don't worry take a breath I'm gonna break it down for you I'm gonna take you through step by step and even if you've created one before but never for property management or rentals I'll offer specific tips and examples including a sample chart of accounts for a property management company or you can go ahead and click the link in the description and download our free chart of accounts template but I'd still recommend watching this whole video to understand how to use it and give you more ideas with that being said let's start from the beginning what exactly is a chart of accounts and why is having one so important a chart of accounts is a list of all the different Financial accounts that your business uses this list is all inclusive meaning it includes every type of financial account like tracking expenses Revenue transactions of every kind credits and anything else business related the best way to think of this is chart of accounts as like a digital filing cabinet imagine every Financial action your business takes as a document in each of those documents fits neatly into a particular folder your chart of accounts isn't just important for filing away financial information though it's also a database you'll pull from to craft important report it's like balance sheets which helps you assess your business Health forecast its future performance and provide information to your banker and accountant your chart of account serves as part of a foundation of a sound business structure so it's worth investing the time and crafting one which does the job how you need it to so then how does it work it can be complex but when you break it down into steps a chart of account for property management is pretty straightforward a chart of accounts is going to be organized into five major types of financial information you have your assets this includes things like properties most notably and financial accounts you have your liabilities which is primary debt such as your mortgages on those properties you have your equity which is the money that you've invested in the business and your Revenue the money the business brings in from things such as rent parking other tenant fees Etc and your expenses the money your business spends to manage itself such as like repair costs from there you then break those primary accounts into sub-accounts and we'll go over some specific examples in the next section once you have all that in place every transaction that passes in or out of business is recorded on that chart of accounts be it property sale rent payment or service costs that not only makes everything way more transparent for you and your clients but easier for you to manage Financial activity and virtually every way so how do you set up a property management chart of accounts well there is no standard structure for a chart of accounts including one for managing property there are however suggested structures that you can use as kind of a template if you're managing a rental property a good place to start for a suggested chart of accounts is an IRS Schedule E and that's form 1040. since you're likely to be filing that anyway you'll be familiar enough with it to understand how your current accounts break down into these major categories once again our template is linked below and it does use that form as a basis to make it as easy as possible to craft your chart of accounts it isn't just a rental property chart of accounts though you can use it for any kind of property management you may be wondering about QuickBooks so keep in mind that QuickBook does have a generic chart of accounts template that you can use however because they're not designed specifically for for property management they typically need more modifications than the work you need to just make your own property management specific template so it's not generally advisable to use one of QuickBooks templates so I'm going to take you through a step-by-step of crafting your own chart of accounts designed for property management let's start with step one establishing your number system the first step in setting up your chart of accounts is deciding on your number system typically that's done with something called block numbering that simply refers to the practice of blocking or preserving large sequences of numbers for future use in the accounting the basic idea is that as your business grows its number of account tends to grow with them right now you might only have 20 asset related accounts but over time you'll have 30 and then 40 Etc so if the numbers you select is let's say 1 through 20 as your asset accounts 21 through 40 as your liability accounts 41 through 60 is equity so on and so forth well one through twenty was your assets but then you hit 21 it's liability so what do you do with your 21st asset it would have to become an account number 101 which becomes really confusing thing instead I suggest doing it like this using blocks of a thousand that way you have more than enough space for new accounts doing it this way doesn't just keep your chart of accounts from being a jumbled mess it also helps identifying accounts easier with number blocking you and your CPA can easily identify what type of account it is by its first digit if it starts with a two you know it's liability if it's a four you know it's a revenue so now moving on to step two which is set up your level 2 accounts it's time to drop in all your level 2 accounts what kind of information fits into each of these five overarching categories here's just a quick breakdown so first is revenue accounts if you manage your own rental properties this typically comes down to one main account rent payments however it also includes any other source of Revenue such as Utility payments security deposits parking fees pet rent anything like that second is your expense account your expense accounts are relatively easy to set up as they'll most likely be similar or identical to the 15 expense accounts listed on that 1040 form that includes things such as advertising Auto and travel cleaning maintenance commissions Insurance legal and other professional fees management fees mortgage interest paid to Banks and so many other interests and repairs and supplies and taxes and utilities the list literally goes on you can also include on an other expenses category for anything that doesn't fit anywhere else however that can get a little tricky when it comes to tax time because they'll need to be identified somehow for both your accountant and the IRS third is your assets account most notably you'll include a line for each business bank account here your mortgage escrow accounts land buildings and improvements are typically included as well a cumulative depreciation is another common account and it's designed to track the depreciation of your assets over time specifically the original value of those assets the accumulated depreciation and the net asset value via the balance sheet fourth we have our Equity accounts Equity accounts essentially include two things your contributions and your distributions or in other words what you put into the business and what you take out expenses paid with cash are also included here as they count as an owner contribution fifth is our liability accounts these liability accounts include several types of accounts such as mortgages loans lines of credit credit cards security deposit so now we're on to our last step of setting up your chart of accounts which is simply just put it all together now you've got the basics and it's time to put it all together to see what a chart of accounts looks like we've taken our five major categories and added many sub-accounts based on what we talked about in Step One the result is a fairly fleshed out chart of account example template for property management it's complex yet easy to read and a chart where each account fits keep in mind that you could use this as a basis for any of your real estate business including as a rental property chart of accounts template and I know there's some questions you've probably been asking during this video so I'm going to answer how do you track multiple properties in your chart of accounts so to track multiple properties in your chart of accounts you'd organize things like this with another layer of sub-accounts so I know that anything starting with one anything in the a thousands is an asset we know anything in the 1400s or starting with 14 as a property now we've also identified provide individual properties with their own third degree identifier so the properties in this example are given the numbers 1401 1402 143-1404 and with that you have the 101 on Crafting a property management chart of accounts one last quick note how you craft your chart of accounts is going to vary somewhat depending on if you're the owner or investor you're the landlord or the property manager for example if you're the property manager then the rent payments you receive should be listed under liabilities just as the same way you'd list security deposits and liabilities you'd also want a separate revenue account for payments to you for your services keep those subtle perspective details in mind when crafting your personal chart of accounts once again you can download our free property management chart of accounts template and it's in Excel format in the link in the description so you can take that and apply everything that you learned in this video or see if you forgot anything in your current setup I know it can be a bit overwhelming so if this helped then make sure to give this video a big Thumbs Up And subscribe for more tips on all things Property Management